Central bank events and global PMIs were the highest drivers this week, prompting our traders to cover a wide selection of currencies, with a giant concentrate on the U.S. dollar.
Out of six discussions, three scenario/price outlook forecasts saw each fundie & technical arguments triggered to develop into a possible candidate for a risk management overlay. Try our review on that discussion to see what happened!
Watchlists are price outlook & strategy discussions supported by each fundamental & technical evaluation, a vital step towards making a prime quality discretionary trade idea before working on a risk & trade management plan.
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GBP/USD 1-Hour Forex Chart by TradingView
On Monday, the upcoming U.K. CPI was our first goal catalyst of the week, which was highly more likely to get the British pound moving as traders will likely use that final result to reprice monetary policy expectations by the Bank of England.
Based on our Event Guide for the U.K. CPI update, expectations were for the surveys to potentially show slowing inflation conditions, and if that’s the case, a possible bullish move in EUR/GBP would shoot to the highest of our watchlist. But within the case where the inflation data showed accelerating rates of price growth, the uptrend in GBP/USD can be the situation to observe for us.
Well, the information was mixed, but with Core CPI coming in well above expectations and annual rates still well above the BOE’s 2.0% rate, it looks just like the markets took the update as net hawkish, signaled by the spike higher in Sterling across the board.
This final result triggered our long GBP/USD bias, but with more top tier events from each the U.S. and U.K., the next price motion remained choppy through the remainder of the trading week. This was likely mainly because of the surprisingly strong U.S. PMI update on Thursday, which dragged lower momentarily.
On Friday, net weak U.K. retail sales data hit the wires, but broad risk-on/anti-Dollar behavior appeared (with out a direct major catalyst, so likely profit taking before weekend), and much outweighed the U.K. update. GBP/USD moved back above the pre-U.K CPI levels/inline with post event levels, to the highest of the intraweek range before the week’s close.
Overall, we’d rate this strategy/price outlook as “not more likely to neutral” by way of being supportive of a net positive final result. GBP/USD mostly traded below the post U.K. CPI event price throughout the week, but for many who waited for dips to play the long side with the fundies, the chances of a positive final result were likely significantly better.
NZD/JPY 1-Hour Forex Chart by TradingView
On Tuesday, our strategists prepared for the one official central bank statement this week, the newest monetary policy decision from the Reserve Bank of Latest Zealand. Our Event Guide for the RBNZ statement saw the most definitely scenario as one where the central bank still sees inflation pressures, that are more likely to be tamed by signs of weakness within the labor market. With a balanced picture, odds are that RBNZ will proceed to carry and maintain neutral-to-slightly-hawkish rhetoric.
Within the case where we did see neutral-to-hawkish RBNZ final result, the uptrend in NZD/JPY was the highest of our watchlist. And for a surprise dovish turn scenario, a possible upside break in EUR/NZD was also on our radars.
Well, as discussed within the Event Guide, the RBNZ did come out with an arguably hawkish hold statement, mainly discussing an openness to rate hikes at this meeting. This prompted a giant spike higher within the Latest Zealand dollar, gains which remained regular for the remainder of the week against many of the majors.
Following the event, NZD/JPY did pullback, but this was likely driven by a round of broad risk-off sentiment, arguably stemming from plenty of rhetoric from the Federal Reserve that rate cuts may come much later than the markets think.
But this pullback and the one on Friday looked as if it would have been buying opportunities for traders seeking to play the precise fundamental stories in each the Kiwi and Japanese yen.
Overall, we expect that this discussion was “likely” supportive of a net positive final result provided that NZD/JPY each traded on the week’s high on the Friday close. But given the intraweek choppiness because of external drivers, we expect that risk/trade strategy and execution would have been a vital factor towards achieving a net positive final result.
USD/CAD 15-min Chart by TradingView
For our final goal catalyst of the week, our strategists took a take a look at the upcoming U.S. Flash PMI updates for potential opportunities in U.S. dollar pairs.
In keeping with the Event Guide, market expectations were that the chances favored overall tick higher in U.S business sector optimism final result, but with several U.S. regional surveys showing weakness, a net tick lower final result has odds of playing out as well.
Within the case where we do see higher than expected sentiment from U.S. PMI survey results, our focus would then be the short-term uptrend in USD/CAD, mainly because of recent Canadian CPI data coming in weaker than expected.
Within the case where U.S. PMI results are available in lower than expectations, the uptrend in NZD/USD would hit the highest of our watchlist for the session.
Well, the U.S. PMI updates got here in hot and hit the markets hard as each manufacturing and repair sector updates got here in higher than expected and former readings. The services sector update especially notable coming in at 54.8 vs. 51.3 April read (which was upwardly revised from 50.9).
This obviously triggered our USD/CAD long setup, in addition to sent risk assets lower within the broad markets. The move was limited though as traders seemed desirous to take profits on Friday after the U.S. dollar’s dominating week, sending USD/CAD lower ahead of the weekend after testing and stabilizing across the the R2 Pivot resistance area late Thursday.
Provided that USD/CAD strongly rallied after the U.S. PMI update and reached the max goal discussed in the unique post, we’d rate this discussion as “likely” supportive of a net positive final result. We predict that due to the market reversing on Friday, risk/trade management would have been a consider the final result.
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