This week our currency strategists decided to focus on the Reserve Bank of Australia monetary policy statement and the latest jobs data from New Zealand for this week’s price outlook discussions.
Out of the four scenario/price outlook discussions this week, two discussions arguably saw both fundie & technical arguments triggered to become potential candidates for a trade & 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/AUD: Monday – Aug. 5, 2024
GBP/AUD 1-Hour Forex Chart by TradingView
On Monday, our forex strategists had their sights set on the upcoming RBA announcement and its potential impact on the Australian dollar. Our Event Guide pointed to expectations of a “neutral hold” that could pave the way for a “buy the rumor, sell the news” event reaction scenario for the Aussie.
Based on that, we had two main scenarios in mind:
Potentially Bullish Aussie Scenario: If the RBA maintained its policy bias or even upgraded economic forecasts, we figured GBP/AUD might take a tumble. We had our eyes on potential bearish candlesticks around the short-term range resistance of 1.9800, which could suggest a return to the bottom around 1.9570.
Potentially Bearish Aussie Scenario: If the RBA surprised with a dovish tone or downgraded forecasts, we thought AUD/JPY could potentially extend its downtrend, especially if broad risk sentiment leaned net negative on global recession fears and/or JPY carry trade unwind speculation.
Well, folks, Tuesday rolled around, and the RBA decided to serve up a “hawkish hold” that would make even the most ardent Aussie bears raise an eyebrow.
The central bank kept its official cash rates steady at 4.35% for the sixth consecutive meeting, emphasizing that high inflation remains a concern. RBA Governor Michele Bullock revealed that members had discussed a rate hike as an option and effectively ruled out a rate cut in the next six months.
This outcome triggered our GBP/AUD bearish fundamental bias and supported our technical bias on the pair, but our target technical setup (bearish candle patterns around 1.9800) was triggered ahead of the target event.
So in our opinion this strategy was arguably “neutral” in being supportive of a net positive outcome. The market moved as we expected to the fundamental outcome, and it moved big favorably as it dropped around 200 pips from the target catalyst trigger.
But if waiting for the fundamental catalyst, it would have taken a real time adjustment in technical strategy before laying out risk, raising the need for good trade planning and execution skills for reaching a net positive outcome.
GBP/NZD: Tuesday – Aug. 6, 2024
GBP/NZD 1-Hour Forex Chart by TradingView
On Wednesday, our strategists had their radar locked on the New Zealand Employment update for Q2 2024 and its potential impact on the New Zealand dollar.
First, let’s chat about the New Zealand Employment update. Based on our work in the Event Guide, we saw that expectations were for a net weak update in labor market conditions, with the unemployment rate predicted to rise from 4.3% to 4.7%, and employment change expected to dip by 0.2% quarter-on-quarter.
As usual, we cooked up two main scenarios to watch:
The potentially Bullish Kiwi Scenario: If the jobs data surprised to the upside or came in line with estimates, we thought we might see a move below GBP/NZD’s head and shoulders neckline around 2.1400, potentially taking the pair down to 2.1260 or even 2.1030.
The potentially Bearish Kiwi Scenario: A weaker than expected jobs figure could bring in fundamental bears on the New Zealand dollar, which made the downtrend in NZD/CHF attractive, especially if broad risk sentiment continued to lean net negative.
So, what did we get? Well, the Wednesday Asia session quickly rolled around, and the New Zealand Employment update decided to throw us a bit of a surprise as the jobs report came in net better-than-expected. The employment change came in at 0.4% q/q (contrary to expectations of a 0.2% decline), and the unemployment rate came in at 4.6%, better than the 4.7% consensus. Also, wage growth beat estimates with a 0.9% quarterly gain versus the projected 0.8%.
Our GBP/NZD bearish bias got triggered both fundamentally and technically this week, with the technical trigger coming first, likely drawing in technical sellers to an extended move lower ahead of the NZ jobs data. And once we did get the positive NZ jobs update, fundamental players likely pushed the Kiwi higher on the session.
So, how’d our discussion go? Well, in our opinion, we’re giving it a “neutral” rating of being potentially supportive of a net positive outcome. Both of our triggers came and the price action validated our biases, but the order in which they came would have made it tough to execute without taking a little bit extra event risk. Also, the choppy sideways action after the event would have made it more difficult to extract some pips.
It would have taken early shorts ahead of the event with the head and shoulders break, or an immediate short on the jobs release to raise the probability of net positive outcome. Or waiting for the bounce for another shorting opportunity and taking quick profits may have yielded a net positive outcome as well.