Play of the Day Recaps: Feb. 6 – 8, 2024

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Our forex strategists mainly focused on the Kiwi this week with a top tier catalyst from New Zealand in play.

That turned out to be a great move as two out of three strategy discussion played out very well, creating strong odds of positive outcomes on net.

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On Tuesday, the New Zealand dollar was at the top of our watchlist ahead of the potentially volatile quarterly employment situation update from New Zealand coming soon. Expectations were for NZ to print mixed numbers, given the surge in migration and the uncertainty for how the country would absorb such an increase in population.

And with that level of uncertainty means potential opportunity for both sides of the market, so we discussed bullish and bearish fundamental + technical setups on NZD/CHF to watch out for. We also noted broad risk environment scenarios to watch out for that may influence NZD price action, an environment that was still focused on central bank comments on future policy expectations.

The NZ jobs update definitely didn’t disappoint as it surprised positive on all of the main metrics, including the labor cost index, which likely had traders thinking an openness to rate hikes are probably still going to be in future RBNZ member comments to come.

The pair broke above the descending channel pattern, which combined with the fundie news, triggered our bull setup on NZD/CHF at around the 0.5300 major psychological level.

With rate hike speculation still in play for NZD and CHF generally leaning bearish this week, it was no surprise that NZD/CHF took off like a rocket higher, with an added boost on Friday after ANZ bank called for rate hikes in the fast approaching RBNZ meeting in February.

Given that our fundamental + technical bull scenario played out, and that the pair took an easy elevator trip higher to our targets and beyond (and without complex risk/trade management adjustments needed), we’d argue that this discussion had a high probability of supporting an positive outcome.

On Wednesday, we continued to focus on the Kiwi after New Zealand surprised traders with significantly better than expected employment data results, and outcome that is likely to draw in fundamental bulls on NZD.

We paired that scenario with the British pound, which sentiment may be on the verge of shifting to relatively less hawkish after we saw a vote to cut interest rates at the last BOE monetary policy meeting.

We also noted that MPC members (Breenan and Mann) were scheduled to give comments this week, and if we saw rhetoric supporting a turn away from elevated interest rate policy, that could potentially draw in fundamental bears/long profit takers on Sterling as well.

Overall, we were leaning bearish in the pair, and if we got more bearish fundamental drivers on the pair, we thought the S2 (2.0550) or S3 (2.0460) levels could be the areas to watch for bulls to step in after a downside move.

After our discussion, GBP/NZD went into consolidation mode, which we’d argue was result of BOE members Breenan and Mann pushing back on the potential timing of interest rate cuts to later in the year as inflation concerns remain. 

But as mentioned above, the Kiwi got a pretty strong boost on Friday from ANZ bank’s call that the Reserve Bank of New Zealand may hike, which put GBP/NZD into major intraday bear mode, easily reaching our previously discussed target area.

Much like the NZD/CHF discussion above, we’d argue our GBP/NZD was net effective in supporting a positive outcome. While our timing and fundamental catalysts for the move were off, our bias, technical setup and the fact that the target areas were reached was probably helpful. 

On Thursday, we looked at the downtrend in EUR/USD ahead of a potential catalyst: the weekly U.S. initial jobless claims data. This report tends to spark strong intraday moves, and when combined with a slew of classic technical setups, we thought the odds were strong of opportunities arising for this pair on the session. 

We noted that FOMC member Barkin had upcoming comments as a potential influence on the greenback, as well as his policy tendencies and how that may affect USD sentiment. 

Our strategists mainly focused on a price action scenario based on if weekly U.S. initial jobless claims came in better than expected, and price areas on EUR/USD where sellers may try to play the overall trend lower. They also touched on an upside break scenario that could invalidate the downtrend.

Not too long after our discussion, sellers quickly took back control of EUR/USD just under the 38% Fibonacci retracement area. Without an apparent direct fundamental catalyst, this may have been a combo of technical traders playing the downtrend on the bounce and/or fundamental players anticipating a better-than-expected round of U.S. weekly jobs data and/or Barkin to push back on rate cut expectations (which ultimately was the case).

That bearish move in EUR/USD on Thursday continued into the release of the weekly U.S. initial jobless claims data, which did come in better-than-expected, and based on the Greenback’s immediate sell reaction, we essentially saw a “buy-the-rumor, sell-the-news” pattern play out on this particular event. 

In judging the effectiveness of this discussion, we’d say it was neutral towards a positive outcome. Our directional tendency, price framework, target area and catalyst analysis turned out pretty much on point, but we didn’t anticipate that the market would price in the fundamental event ahead of the release. 

It’s likely those who waited for the event may have not taken a trade given the market was far from our technical entry area. And there may be some cases were traders bought Greenbacks on the event, only to see a negative turn as traders took profits on the pre-event rally. So, individual risk and trade management plans was likely a big factor for this particular strategy discussion overall.

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