With expectations of a lower volatility week, our strategists slowed it down a bit with only two forex discussions, surrounding the Australian CPI release.
Out of the two discussions, one scenario/price outlook forecasts 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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AUD/JPY: Tuesday – May 28, 2024
AUD/JPY 1-Hour Forex Chart by TradingView
On Tuesday, the upcoming Australian CPI was our target catalyst of the week, an event that tends to get the Aussie moving, especially given that it is one of the main inputs to reprice monetary policy expectations for the Reserve Bank of Australia.
In on our Event Guide for the Australian CPI update, most recent business surveys showed a quickening in inflation growth, but market expectations were for the CPI rate to tick lower from 3.5% y/y to 3.3% y/y.
In the scenario where Australian CPI comes in hotter-than-expected, we focused on the strong uptrend in AUD/JPY for potential long Aussie setups. And in the scenario where the inflation update comes in below previous/forecast as the market expected, we discussed a possible short Aussie setup in AUD/CAD.
Well, it looks like the business surveys were right in this case as Australian CPI came in hotter-than-expected at 3.6% y/y, supporting the case for interest rates to remain elevated in Australia.
This outcome triggered our long AUD/JPY bias, and as expected based on our research in the Event Guide, AUD/JPY pulled back after the initial spike higher on the event.
In our original discussion, our strategists thought a pullback to the 104.00 major psychological handle could potentially draw in longer-term fundie & technical buyers, but the pair actually fell all the way to the S1 Pivot support level / previous strong support area from May 22nd.
This extra drop was likely due to the broad risk-off vibes sparked by rising geopolitical tensions and net hawkish commentary from FOMC officials Williams and Bostic supporting an elevated interest rates outlook on Wednesday.
From the S1 Pivot support level / previous strong support area, technical buyers stepped in quickly, and with the help of U.S. Treasury yields falling during the Thursday U.S. session, risk-on expressions like long AUD/JPY benefitted.
Overall, we’d rate this strategy/price outlook as “likely” in terms of being supportive of a net positive outcome.
AUD/JPY did pullback as discussed by our strategists in this particular scenario, and while the dip was deeper than expected, it was well within the daily ATR from the target entry area. So the odds were high that long players were able to weather the dip.
For those who expressed long positions in the area from the Pivot point down to the S1 Pivot support level / previous strong support area, it’s highly likely the outcome would have been net positive without highly complex risk/trade management given that AUD/JPY closed near intraweek highs on Friday.
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