With two major central bank statements this week, it was easy for our forex strategists to deal with the Loonie and euro this week because the predominant markets to look at.

Out of the 4 scenario/price outlook forecasts discussions, two arguably saw each fundie & technical arguments triggered to turn out to be 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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AUD/CAD 1-Hour Forex Chart by TradingView

On Tuesday, the upcoming monetary policy statement from the Bank of Canada was our first goal catalyst to deal with, an event that nearly all the time gets the Loonie moving as soon because the statement is released.

In our Event Guide for the BOC statement, we noted the market was pretty confident of an rate of interest cut from the BOC, which was supported by recent Canadian CPI readings event falling wanting estimates for 4 consecutive months.  But we also noted that leading indicators were signaling a rebound in inflation rates, clouding the percentages on the event end result a bit.

Overall, though, the percentages favored a scenario where the event was going to be net dovish for the Loonie, and in that case we saw potential long biased setups on AUD/CAD, discussing each upside breakout price motion and pullbacks across the event.

Now, if the event surprised markets and turned out to be net neutral-to-hawkish for the Loonie (e.g., strong rhetoric of sticky inflation; openess to climbing rates again, etc.), then we took a have a look at setups on EUR/CAD for potential short-term long Loonie plays in that scenario.

As expected, the BOC cut its rates of interest by 25 basis points on Wednesday, with the statement immediately drawing in a sell response from forex traders. That pump higher in AUD/CAD was limited to the primary 15-minute candle and reversed, as traders likely took profit ahead of the BOC press conference.

On the press conference, BOC Gov. Tiff Macklem shared his openness to further rate cuts, but in addition that the BOC is “going to be taking our rate of interest decisions one meeting at a time.”  He also commented on how far the BOC policy rates can diverge with the U.S., but that they’re “not near those limits” in the mean time.

His comments were measured and arguably net neutral, which is probably going why we saw CAD recuperate during his appearance. But they weren’t strong enough to overshadow the undeniable fact that the BOC is more more likely to move away from restrictive policy going forward, making it a net dovish end result and fundamentally triggering our AUD/CAD long bias. 

Following the BOC event through the closely watch Canadian jobs report, AUD/CAD spent the vast majority of the time above post press conference prices (roughly around 0.9095), raising the percentages of this discussion being supportive of a net positive end result. The pair actually saw two rallies from that area giving traders multiple probabilities to play that fundamental bias.

On Friday, though, trade management decisions would have been an enormous think about the end result. The upcoming Canadian employment update was right across the corner to spark big CAD volatility, and depending on whether or not a trader managed the position to lock in profits / reduce risk would have modified the end result significantly given the response to a surprise positive jobs headline/Loonie’s spike higher.

Overall, provided that AUD/CAD spent many of the week above BOC event prices, we’d argue this discussion as “likely” supportive of a positive end result, but would have heavily depending on risk/trade management decisions on Friday ahead of the main event from Canada.

EUR/USD 1-Hour Forex Chart by TradingView

On Wednesday, the upcoming monetary policy statement from the European Central Bank was our second catalyst of alternative to deal with,

In our Event Guide for the ECB statement, we discussed the high (and long priced in) expectations of an rate of interest cut, but with signs of green shoots from Euro area leading indicators in recent months, it was likely we’d also see rhetoric signaling caution from cutting rates of interest too aggressively.

So, the market’s response would likely hinge on the ECB press conference, with traders awaiting signs of strong conviction a cut in July or September is warranted because the predominant cue to stay bearish on the euro. In that dovish scenario, we looked to EUR/JPY as a solution to express a bearish euro bias given recent signals of the BOJ tapering its bond-buying program sometime soon.

Within the event the ECB downplays future cuts and the euro rallies on that rhetoric, then we threw a protracted bias on EUR/USD as that market could potentially attract buyers on this scenario, given the disappointing early jobs reads from the U.S. as much as that time.

As expected, the ECB cut its rates of interest by 25 basis points on Thursday, sparking an fast spike higher within the euro, partly on account of a “buy-the-rumor, sell-the-news” response, but in addition possibly a response to the ECB upgrading economic growth and inflation forecasts as well, conflicting with expectations/hope of further rate cuts ahead. 

The ECB press conference soon followed with ECB Governor Christine Lagarde holding back on forward guidance on policy moves, which overall, did nothing to strongly signal against their upgraded forecasts. We took this as a “hawkish cut” end result, arguably triggering our EUR/USD long bias discussion.

Following the event, EUR/USD did trend higher, however the volatility was limited, likely on account of traders hitting the sidelines ahead of the all the time anticipated monthly U.S. government employment situation update only a day ahead.

That massive event risk made trade/risk management a vital component as as to if or not this discussion resulted in a net positive end result, and for individuals who longed EUR/USD after the ECB event and took profits ahead of the U.S. NFP data likely did okay with small gains.

But for individuals who took a chance on arguably one probably the most volatile events every month and stuck with the long positions, very likely did very poorly on this discussion.

So overall, we’d rate this discussion as “neutral” in its potential support of a positive end result given the low volatility post ECB event, and the big factor or risk/trade management decisions going into the U.S. jobs update.  

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