Premium Foreign exchange Watch Recaps: Sept. 16 – 18, 2024

This week our foreign money strategists centered on the Canadian CPI replace and the Australian employment replace for potential high-quality setups.

Out of the 4 situation/value outlook discussions this week, two discussions arguably noticed each fundie & technical arguments triggered to turn into potential candidates for a commerce & threat administration overlay.  Try our evaluate on these discussions to see what occurred!

Watchlists are value outlook & technique discussions supported by each basic & technical evaluation, a vital step in the direction of making a prime quality discretionary commerce concept earlier than engaged on a threat & commerce administration plan.

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USD/CAD 1-Hour Foreign exchange Chart by TradingView

On Monday, our foreign exchange strategists had their sights set on the upcoming Canada CPI launch and its potential affect on the Canadian greenback. Based mostly on our Occasion Information for the Canada CPI replace, the markets have been anticipating a slight easing in inflation, with headline CPI forecasted at 0.3% m/m and a pair of.4% y/y, under the earlier reads of 0.4% m/m and a pair of.5% y/y.

With these expectations in thoughts, right here’s what we have been pondering:

The “Loonie Bounce” Situation

If the CPI got here in larger than anticipated, we figured this might ease the latest rise of dovish BOC expectations to doubtlessly attract short-term internet shopping for for the CAD. We thought this situation might result in a “purchase the rumor, promote the information” response for NZD/CAD, particularly given its latest bounce from channel lows and retest of channel highs, doubtlessly drawing technical sellers this week.

The “Loonie Bounce” Situation

If Canada’s inflation information got here in weaker than anticipated, we anticipated this might weigh on the CAD and reinforce dovish BOC expectations. We eyed USD/CAD for potential lengthy methods, notably because the pair was approaching a help space round 1.3550, which aligned with an ascending trendline and the 50% Fibonacci retracement stage.

What Truly Occurred

Properly, of us, Tuesday rolled round, and the August CPI figures got here in considerably internet weaker than anticipated, with the headline studying dropping 0.1% m/m versus the anticipated 0.3% improve. The year-on-year charge eased to 2.2%, under the forecasted 2.4% charge.

Different key factors from the CPI report:

• Core CPI (excluding meals and vitality) fell 0.1% m/m, in comparison with expectations of a 0.2% rise
• The Financial institution of Canada’s most well-liked measures of core inflation additionally eased, with trim CPI at 2.5% y/y and median CPI at 2.4% y/y
• Gasoline costs have been a significant contributor to the decline, falling 7.3% in August from July

Including to the combo, U.S. retail gross sales information launched on the identical time confirmed a 0.6% m/m improve, surpassing the anticipated 0.2% rise, which offered further help for the U.S. greenback.

Market Response

The preliminary market response to the CPI information launch was decisively bearish for the Canadian greenback. Taking a look at our USD/CAD chart, we will see that the pair noticed a right away soar following the CPI launch, climbing from across the 1.3580 stage in the direction of the R1 pivot level at 1.3620.

The pair chopped round forward of the extremely anticipated FOMC assertion, which unsurprisingly sparked huge motion in USD/CAD following the discharge. The pair truly dipped all the way in which to our focused lengthy entry space round 1.3550 (Fibs and S1 Pivot space), the place it instantly discovered help and bounced shortly. This was presumably as a result of USD energy, possible as a result of feedback from Fed Chair Powell that the U.S. economic system remains to be doing nicely and that the Fed will possible take a gradual strategy to easing.

The Verdict

So, how’d we do? In our unique dialogue, we talked about potential lengthy setups on USD/CAD if Canadian inflation information got here in weak, which it did.  We additionally talked about to be careful for bullish conduct patterns under market across the 50% Fibonacci retracement stage and S1 (1.3550) earlier than contemplating an extended bias.

If that technique was adopted, it’s “possible” that it supported a internet constructive consequence, on condition that the market discovered a backside in that space a number of occasions, presenting a number of lengthy alternatives. The upside bounces have been fairly restricted although, so commerce planning and administration would have been a big issue within the consequence, which is why we rated the technique as “possible” total.

EUR/AUD 1-Hour Foreign exchange Chart by TradingView

On Wednesday, our strategists had their sights set on the Australia Employment Replace for August 2024 and its potential affect on the Australian greenback. Based mostly on the main indicators mentioned in our Occasion Information, expectations have been blended, with the online employment change seen at +28.0K (earlier +58.2K), unemployment charge anticipated to regular at 4.2%, and full-time employment projected at -7.0K.

With these expectations in thoughts, right here’s what we have been pondering:

The “Aussie Advance pt. 1” Situation:

If the employment information got here in stronger than anticipated, notably with larger internet job positive aspects and regular or decrease unemployment charge, we anticipated this might doubtlessly attract basic AUD patrons. We centered on EUR/AUD for potential brief methods, particularly given the pair’s latest downward momentum and the formation (and doable neckline break) of a head and shoulders sample on the hourly chart.

The “Aussie Advance pt. 2” Situation:

If the Australian jobs information disenchanted, primarily displaying decrease internet job positive aspects or the next unemployment charge, this may increasingly solely have a brief impact on AUD. Our research have proven that except the information consequence is extraordinarily divergent from forecasts, the Aussie will shortly return to taking cues from the broad market.

Within the case the place information is barely weak however broad market sentiment is leaning constructive, we thought of AUD/NZD for a possible bounce technique, given its latest uptrend and the potential of bullish reversal conduct growing after pullback.

What Did the Knowledge Say

The Australian jobs information was arguably a internet a constructive shock, with the economic system including a internet 47.5K jobs in August, larger than the anticipated 28.0K improve. Right here’s a breakdown of the important thing figures:

• Web employment change: +47.5K (vs. +28.0K anticipated)
• Unemployment charge: Regular at 4.2% (as anticipated)
• Full-time employment: -3.1K (vs. -7.0K anticipated)
• Half-time employment: +50.6K (vs. +35.0K anticipated)
• Labor power participation charge: Regular at a report excessive of 67.10%
• Employment-to-population ratio: Edged larger from 64.2% to 64.3%

General, this replace was typically perceived as extra constructive than the markets anticipated, supporting the RBA’s case in opposition to the necessity for a short-term rate of interest reduce.

Market Response

The preliminary market response to the Australian jobs information was decisively constructive for the Aussie in opposition to all main currencies, aligning with our “Aussie Advance” situation for EUR/AUD.

Taking a look at our EUR/AUD chart, we will see that the pair was already in a downtrend, having damaged under the neckline of the pinnacle and shoulders sample round 1.6440 (S1) earlier than the information launch. The sturdy jobs report triggered a pointy decline, pushing the pair in the direction of the S2 help stage at 1.6353.

EUR/AUD discovered its backside of the week on the S2 stage, with the pair consolidating between 1.6360 and 1.6400 within the following classes. The 100 SMA and 200 SMA on the 1-hour chart have now crossed bearishly, additional confirming the downtrend.

It’s price noting that the market’s response to the Australian jobs information was considerably tempered by the broader market dynamics following the Fed’s 50bps charge reduce announcement within the earlier U.S. session. This possible explains why the EUR/AUD didn’t see a extra prolonged decline under the S2 stage.

The Verdict

So, how did we do? In our unique dialogue, we talked about potential brief setups on EUR/AUD if the Australian employment information got here in stronger than anticipated, which it did. The pinnacle and shoulders sample performed out as anticipated, with the neckline break occurring even earlier than the information launch, presumably as a result of positioning forward of the occasion.

For individuals who leaned bearish on EUR/AUD proper when each basic and technical arguments have been triggered, they possible noticed one of the best alternative to catch the sturdy downward momentum. However for individuals who waited earlier than shorting, it’s extremely possible they both broke even or took a small loss.

General, we’d charge this dialogue as “impartial” in supporting a possible constructive consequence as a result of whereas the technique did yield speedy constructive outcomes, real-time response and commerce administration would have been vital elements in figuring out the end result.