Play of the Day Recaps: Feb. 20 – 22, 2024

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Our forex strategists had a very solid week as all three discussions were highly likely to have resulted in positive outcomes in EUR/CAD, NZD/JPY & EUR/GBP!

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On Tuesday, we saw that Canada’s CPI was right around the corner, an obvious potential market mover for the Canadian dollar. Analysts anticipated a reading that would likely signal “subdued price pressures,” which could potentially drive more traders to expect a less hawkish stance by the Bank of Canada’s (BOC) on interest rates after the event.

If that base case scenario played out, we discussed a potential consolidation breakout setup on EUR/CAD to the upside, with potential targets using the latest Pivot point levels.

Of course, we had to consider the other scenario where the data showed positive surprises, because as always, anything can happen in the markets. If CPI figures were to come in stronger than expected, it’s likely the Canadian dollar (Loonie) may appreciate, leading to a potential EUR/CAD range breakout below the 1.4560 support level.

Canadian inflation data fell short of estimates, prompting an instant selloff in the Canadian dollar, and for EUR/CAD, that meant the small upside range break turned into a large one as the pair moved more than one daily ATR from the break to top out just under 1.4650 before the rally ended.

Traders who saw this fundamental + technical trigger still had a chance to get in at solid prices as the pair was still trading below 1.4600 10  to 15 minutes after the data release and still catch up to around 50 pips before the top. For those that did, it was highly likely that this discussion was supportive of a positive outcome as the market traded above the break area for the rest of the week. 

On Wednesday we were checking out NZD/JPY, a popular currency pair for carry trades. It had been moving higher early in the week, breaking out of last week’s consolidation, likely on fundie drivers (i.e., People’s Bank of China’s recent prime loan rate cut potentially drawing in risk-on sentiment, recent signals from New Zealand of resilient inflation and economic conditions).

With the fundamentals strong in favor of the bulls, we leaned positive on the pair, but we did cite potential catalysts ahead that could draw in a pullback, most notably a broad shift in risk sentiment (e.g., FOMC meeting minutes and global flash PMI updates).

The FOMC minutes turned out to be a bit of a non-event for broad risk sentiment, and despite concerns about cutting rates too quickly, anti-dollar and/or risk-on vibes generally creeped back into the markets.  This was likely due to positive sentiment from U.S. equity markets on better-than-expected corporate earnings data.

Global PMIs were generally mixed and continued to signal stability in services sectors, while manufacturing sector sentiment remained in the dumps. This correlates with some risk-off vibes during the Thursday session, which was later flipped during the U.S. session on better-than-expected weekly initial claims and signs of resilience in the U.S. flash PMI figures.

Overall, we think that discussion was effective towards a positive outcome as our directional biases played out, price never really traded below our discussion price area, and the market moved higher by one daily ATR. There were also opportunities for both pullback and swing high break entry strategy players to get in and potentially make a profit. 

On Thursday, EUR/GBP caught our eye ahead of potential catalysts from both the Eurozone and the U.K. Flash PMIs were set to release in the upcoming London session, with expectations of the Eurozone PMIs to show contraction in Germany and France, while sticky inflation was expected to be confirmed from the U.K.’s survey.

In the case where Eurozone PMIs came in contractionary and the U.K. surveys come in better than the Eurozone, we thought the top of the range on EUR/GBP could potentially draw in sellers. And of course, we discussed a technical scenario to potentially play out if Eurozone PMIs came in better than expected

We also discussed the possibility of the Eurozone PMI data to show mixed sentiment, which means Sterling sentiment would have been the likely drive of the pair in the session.

Eurozone February flash PMI readings turned out mixed but stayed mostly in contraction territory, while U.K. data was also mixed, but saw a tick higher in manufacturing sentiment.

And just ahead of those releases, Bank of England Policymaker Greene was noted on saying that relatively high inflation in the U.K. means that she was not ready to back rate cuts.

Overall, the fundamental picture was bearish for EUR/GBP on the session, and it looks like technical traders agreed, pushing the pair lower from the top of the range noted in our original discussion. And through the rest of the week, the market moved lower one daily ATR from that area, creating a solid move for the bears by the end of the week.

This discussion was also highly likely to have resulted in a positive outcome as both our fundamental and technical arguments were triggered and we saw a solid move in favor of of that bearish bias.

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