Our forex strategists targeted the U.K. jobs update and FOMC statement this week for potential short-term opportunities to watch.
Out of the four scenario/price outlook discussions this week, two arguably saw both fundie & technical arguments triggered to become a potential candidate for a risk management overlay. Check out our review on that discussion to see what happened!
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
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GBP/JPY: Monday – June 10, 2024
GBP/JPY 1-Hour Forex Chart by TradingView
On Monday, Sterling was the target asset to watch as the latest employment data from the U.K. was ready to hit the markets this week. Our Event Guide for the U.K. jobs report was slightly mixed, with the market expecting a slightly faster increase in jobless claims for May and steady wage growth, while business surveys pointed to a likely net stronger picture.
In the case the jobs report came in net positive (likely reducing odds of a rate cut from the Bank of England), we thought GBP/CAD would be a great option to watch for longer Sterling setups given the recent increase in dovishness from the Bank of Canada.
But in the case where the U.K. jobs data came in net weaker than expected, we looked towards GBP/JPY for potential bearish Sterling setups, given that the Bank of Japan may be on the cusp of moving further away from its ultra loose monetary policy (i.e., potential rate hikes and/or quantitative tightening ahead).
On Tuesday, the U.K. data was released, with a larger than expected jump in unemployment at 50.4K for May (10.2K forecast; 8.9K previous), and unemployment rate ticked higher to 4.4% from 4.3% to support. Both support a net negative outcome view on the release, but wage growth rates remain elevated at 5.9% , a potential driver for prices to remain elevated ahead, reducing support for the Bank of England rate cut narrative.
Overall, though, this was a net negative report, triggering our bearish bias on Sterling, arguably confirmed by the dip in GBP/JPY post event release. And in our original discussion, we noted that “the pair could head for the 200.75 previous highs near today’s R1 (200.89) Pivot Point line before it sees sustained bearish demand.”
On the chart above, Guppy did see buying pressure through out the week even post U.K. jobs release, arguably on JPY weakness ahead of the Bank of Japan monetary policy statement.
GBP/JPY spike as high as 201.55ish post BOJ statement after there was no signal of bond purchase tapering before finding a top, but we ultimately saw a reversal after BOJ Governor Ueda signaled that rate hikes were still a possibility at the BOJ press conference, along with potential quantitative tightening.
Overall, with this discussion risk & trade management execution would have definitely been a big factor on this outcome, as well as a bit of patience to execute at the right prices. But ultimately, the markets did play out in favor of the fundamental developments this week.
And given that GBP/JPY closed below our discussion price, target catalysts price areas, and the target resistance watch area (and given that the market never traded more than one ATR above our target resistance area), an argument can be made that this discussion was “likely” supportive of a net positive outcome.
USD/CAD: Wednesday – June 12, 2024
USD/CAD 1-Hour Forex Chart by TradingView
On Wednesday, the highly anticipated monetary policy statement from the FOMC was our main event target of the week, likely to get all markets moving bigly and create potential opportunities, especially for the U.S. dollar.
Our Event Guide on the potentially monster event signaled that the most probable outcome would likely be the Fed continuing support for a restrictive interest rate environment in the U.S., and that the main thing to watch would be the Fed’s updated economic projections and “Dot Plot” for 2024.
In the case where we the Fed lower economic growth and inflation forecasts to support the narrative of several rate cuts in 2024, then we turned to USD/CHF for potential Greenback short opportunities, with the pair giving sellers strong downside momentum recently.
Vice versa, if we saw a scenario where the Fed’s rhetoric and outlook would reflect likely less rate cuts ahead, we had USD/CAD on the watchlist for a potentially bullish USD move opportunity, given the recent increase in dovishness from the BOC, as mentioned earlier.
On Wednesday, the Fed held their target Fed Funds range at 5.25% – 5.50% as widely expected, while maintaining their median growth forecasts BUT upgrading inflation estimates for this year and the next. What was more interesting was that 11 out of 19 policymakers were expecting no more than one rate cut this 2024 while four officials actually expect no easing moves at all. This definitely made the event a net bullish driver for the Greenback, triggering our USD/CAD long bias.
In our original discussion, we noted that USD/CAD may ease to the 1.3710 – 1.3725 area as traders take off their bets ahead of the anticipated U.S. CPI and FOMC reports. The pair actually
So for those who executed a long bias on USD/CAD after the Fed event’s net hawkish confirmation, it’s “highly likely” this discussion was supportive of a net positive outcome as the pair rallied more than one daily ATR from the FOMC statement price area, and maintained gains relative to that area going into the Friday close.
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