Play of the Day Recaps: October 2 – 6, 2023

Forex News FX

Our forex strategists leaned with bullish USD sentiment this week, which was effective early on but ran into problems as traders likely took profits / reduced risk on USD longs ahead of the highly anticipated monthly U.S. employment update.

On Monday, EUR/USD was back at the top of the watchlist with expectations of the U.S. likely to flex its muscles with their upcoming employment updates, and until the market significantly moved to upside to break the downtrend we leaned bearish on EUR/USD for the time being.

The inverted head-and-shoulders pattern neckline was our area to watch for bearish patterns, which actually didn’t take to long to draw in sellers on Monday, possibly on the continued expectations of another rate hike from the Fed overshadowing everything else.

This actually took the market to our target area around 1.0500, well before U.S. jobs data was even released, and for those who did play those big bearish candles on Monday at the broken neckline, it’s likely you saw a positive outcome if your risk management plan included taking profits at the target area.

USD/CHF caught our attention on Tuesday after Switzerland’s consumer prices update came in below expectations (-0.1% vs. 0.0% forecast). This supports the “no further hikes” argument for the Swiss National Bank, an outlook that is likely to draw in more sellers than buyers on the Swiss franc.

With that perspective and our broadly long USD bias, we leaned bullish on USD/CHF, and discussed several behavior patterns that may signal a long trigger, including an upside break of the consolidation pattern, as well as a break-and-retest pattern.

Since that post, the Greenback actually broke to the upside and sustained trade above the falling trendline for a day. USD sentiment then reversed, potentially on a lower-than-expected U.S. ADP private payrolls update, and/or profit taking on USD longs ahead of the Friday government jobs report.

Whatever the case may be, USD/CHF continued lower through the week despite net positive jobs updates leading into the Friday NFP report, which showed that the U.S.’ employment situation still remains very strong.

Overall, it’s likely this strategy discussion did not yield a net positive outcome, but with proper risk management, it’s very likely the outcome wasn’t very negative either as USD/CHF price action was kept in a tight range this week.

After a less-hawkish-than-expected monetary policy statement from the Reserve Bank of New Zealand, we were scoping out NZD/USD as the pair broke below a rising ‘lows’ trendline on the one hour chart.

Market expectations were for the fast approaching U.S. ADP and ISM services PMI reports to come in weaker, and we noted the possibility of short covering (profit taking) , which when both combined, could bring the market higher to the rising trendline once again.

We leaned bearish on the pair at the time, and our trigger to potentially play the pairs downtrend was if bearish reversal patterns played out at the trendline, that could spark a new downtrend move.

Well, as mentioned above, the Greenback did see a pullback this week (likely on USD long profit taking / rising “soft landing” speculation), which took the pair to the rising trendline and beyond.

There were bearish patterns at the moving averages above the trendline and if taken as a short trigger, the outcome was likely negative as the pair continued higher through the rest of the week.

On Thursday, we saw that German and French economic updates didn’t spark euro bullish vibes, and with the chart still in downtrend mode, we discussed several strategies for EUR/USD fundamental bears. But we also noted that if downside momentum didn’t pick up before Friday’s NFP event, best practice was to stay on the sidelines to avoid event risk.

Well, the bearish momentum never formed on EUR/USD after our discussion, and with NFP fast approaching, our bearish bias was invalidated to avoid unknown event volatility / outcome.

The U.S. employment situation update for September came in pretty strong, with the net jobs change data coming in well above expectations (including an upwardly revised August number). This headline sparked the initial USD rally, but when traders saw the lower-than-expected wage growth and unemployment rate numbers, sentiment quickly shifted.

It’s likely this was enough to prompt traders to reprice a “soft landing” / “peak Fed rate hike cycle” outlook, which mean anti-USD and pro-risk reaction heading into the weekend.

Overall, there was no trigger for a short position, so no negative or positive outcome if risk managed around our discussed strategy / outlook.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.

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