Our strategists had a unprecedented week with arguably 4 out of 4 technique discussions catching stable strikes in FX and gold!
Our anticipation of worldwide risk-off vibes performed out nicely, so learn additional to see how fundamentals drove value and what classes might be realized on your personal buying and selling!
We kicked off the brand new week with a have a look at NZD/USD forward of the extremely anticipated rate of interest choice from the Reserve Financial institution of New Zealand.
Earlier than the occasion, the pair was already in a downtrend, basically supported by weakening financial updates from New Zealand and China lately. We thought that if the pair bounced across the RBNZ occasion and if it appeared that the central financial institution’s considerations on the financial system could begin to outweigh inflation circumstances, elementary bears on the Kiwi could step again in brief at higher costs.
On Wednesday, the RBNZ hiked rates of interest to five.5% as anticipated, however famous that additional hikes are nonetheless a chance and that rate of interest coverage will doubtless keep restrictive for a while. The Kiwi popped proper on the information, doubtless on commentary that rates of interest will keep excessive for an prolonged time period.
Sadly for us, that pop wasn’t as excessive as we favored (to the confluence of falling shifting averages and Fibonacci retracement ranges) because the bears stepped just below the 0.6000 space to defend and hold the downtrend alive.
However for individuals who had been extra aggressive on the danger administration, it’s doubtless our dialogue on NZD/USD became a constructive final result because the market is buying and selling under our dialogue value.
On Tuesday, we eyed USD/CAD on the 15-minute chart, in search of a possible continuation of the uptrend with the assistance of the upcoming Canadian inflation updates and the newest retail gross sales knowledge from the U.S.
Expectations had been for Canadian inflation to ease whereas U.S. shopper exercise was anticipated to speed up a bit from June to July. And if these occasions performed out as anticipated, the percentages had been fairly good USD/CAD would additional attract fundie bulls in addition to technical bulls on a pullback.
In the course of the Tuesday U.S. session, Canadian inflation knowledge was blended however internet sizzling with the headline CPI learn coming in method above expectations and forecasts at 0.6% m/m. U.S. retail gross sales additionally got here in very robust at 0.7% (0.3% forecast/earlier learn).
This correlated with a drop in USD/CAD to the rising lows sample marked on the unique chart, which did appear to tug in patrons shortly because the pair bounced again to pre-release ranges inside the subsequent hour or two.
Since then, it’s been a gentle transfer larger for the pair, even breaking by the highest of the channel sample, which became a few technical shopping for alternatives on a pullbacks. The rising shifting averages additionally appeared to have been a powerful purchase space throughout the week.
The argument is robust that this was a really efficient technique dialogue on USD/CAD as the end result was doubtless constructive, even with easy danger administration plans.
CAD/JPY hit the highest of the watchlist on Wednesday after the pair broke under a textbook uptrending sample in value. It seems to be like broad risk-off sentiment and intermarket influences had been a driver as weak financial updates in China doubtless prompted merchants to cost in future world financial weak point, together with much less demand for oil.
We additionally touched upon the current dominating theme driving the yen of doable intervention actions from the Financial institution of Japan to restrict yen positive factors. Keep in mind that inflation strain in Japan has some merchants anticipating the concept of the BOJ tightening up on financial coverage down the street.
However our primary short-term focus was on the upcoming FOMC assembly minutes as that occasion would doubtless affect broad danger sentiment throughout the monetary markets.
We thought that if there have been hints within the minutes that pointed to additional tightening / restrictive coverage being wanted for longer than anticipated, then that might deliver danger aversion conduct short-term (doubtless benefiting the yen) .
If that was the case, we thought that CAD/JPY may make it’s method decrease to the S1 pivot stage (107.50) or S2 (107.29) pivot ranges if volatility spiked larger on the occasion.
Not too lengthy after our dialogue, CAD/JPY did rally larger again to the rising ‘lows’ sample and rode it larger to the R1 Pivot space touched upon in our authentic put up. This was additionally the earlier swing excessive space, and this appears to been sufficient to attract in sellers to carry off additional positive factors.
Danger sentiment turned detrimental on Thursday on each rising bond yields and this week’s slew of detrimental headlines from China, sparking a swift transfer decrease in CAD/JPY. This bearish transfer was doubtless helped alongside additional by Japanese inflation updates, which confirmed costs persevering with to rise at a face tempo, supporting hypothesis that the BOJ ought to normalize financial coverage earlier than many anticipate.
All put collectively, there was sufficient for foreign exchange merchants to push CAD/JPY to not solely the primary technical goal on the S1 pivot space, but in addition the S2 pivot goal earlier than the Friday shut, doubtless leading to constructive outcomes for the technique if the break-and-retest of the rising ‘lows’ sample was danger managed nicely.
On Thursday, our FX strategists shined the highlight on Gold as the valuable steel has been trending decrease towards the Dollar. Given the rising risk-off atmosphere this week, it’s doubtless that gold was dropping its attractiveness to USD as a secure haven asset as bond yields rise on rising charge hike expectations.
However on the time of writing, XAU/USD was in bounce mode after making a reverse head-and-shoulders sample on the 15-minute chart. We thought the bounce may get as excessive because the R1 pivot level space if the transfer prolonged into the following buying and selling session. Our thought was that until we anti-dollar headlines / knowledge popped up, this bounce may attract elementary sellers at higher costs.
Fortuitously for our bearish lean, not solely did we not get any anti-dollar headlines, however weekly U.S. jobless claims and the Philly Fed manufacturing index got here in higher than anticipated. Additionally, bond yields continued to rise on Thursday, prompting additional strikes into the Dollar, particularly as contagion considerations grew in China.
The R1 stage drew within the bears, resulting in a swift transfer decrease throughout the Thursday U.S. buying and selling session. We finally noticed a retest / break of the earlier swing low and temporary contact of our bearish goal on the S1 pivot space earlier than patrons took again management.
Once more, outcomes are extremely depending on the danger administration plan, which is exclusive to and the person duty of each dealer on the market. And for individuals who danger managed round that fast transfer decrease and took earnings at goal, you doubtless noticed a really constructive final result.
Hopefully that was you and when you discovered worth within the content material above and wish to see extra, please comply with us on Twitter, Fb and Instagram for updates after we launch future technique discussions!
This content material is strictly for informational functions solely and doesn’t represent as funding recommendation. Buying and selling any monetary market entails danger. Please learn our Danger Disclosure to be sure you perceive the dangers concerned.