Play of the Day Recaps: Sept. 25 – 29, 2023

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Thankfully, the trend was a friend to our strategists this week, leading to likely positive outcomes for most of price outlook discussion.

Three out of four discussions moved as favored, with two out of those three even seeing both the expected pullback and a strong rally after.

Missed the action!? Check out the review below to see more of how the markets behaved and hopefully you can take away some lessons to apply to your own trading processes!

On Monday, we were keeping a close eye on EUR/USD as it price action stabilized into a tight range between 1.0620 and 1.0680 ahead of potential volatility catalysts like the upcoming testimony from ECB President Lagarde and German business sentiment data.

And given the broad lean in Dollar bullish sentiment (recent hawkish Fed events), we thought that rise in volatility may lead to a continuation of the strong downtrend, potentially on a downside break of price consolidation.

We also thought that a bounce was a possibility given the extent of the downtrend, so our lean was to wait for a bounce and if the euro events turned out to be bearish for the euro, then we’d be on the lookout for bearish reversal patterns at a resistance are, likely the top of the range around 1.0680.

Well, President Lagarde continued to reiterate their resolve in the fight against inflation, which appeared to had little influence on price given the message remains the same. Instead, it appears euro traders focused on the data, and with the Euro area data printing solidly net negative reads in the front half of the week, euro bears remained in control.

And with Dollar strength running rampant through Wednesday, there was no bounce to test our preferred entry area. Instead our downside, consolidation break scenario played out, leading to a 100 pip move to the 1.0500 major psychological level before buyers took back control on sticky Euro area inflation updates and general long USD profit taking.

Overall, it was an effective strategy discussion on EUR/USD, and it’s likely positive outcomes were had as we got direction right, especially by those would took the downside break scenario and aggressively risk managed the continued USD strength.

NZD/USD had been grinding higher in September, and with the USD moving higher broadly, we thought that would lead to potentially playing NZD/USD strength at a better price.

We looked ahead to upcoming U.S. data (U.S. CB consumer confidence, new home sales, and Richmond manufacturing index) as a potential catalyst for both direction and volatility, thinking that if they came in weaker-than-expected, that may prompt “peak rate” thinking and potentially some profit taking / long USD reduction.

With that fundie setup in mind, our thought was to wait and see if the rising trendline / S1 Pivot support confluence area would be tested and draw in buyers. If bullish reversal patterns did appear, that may attract bulls to keep the pair going.

Well, the U.S. data did come in arguably net weaker, but overall USD sentiment was still in bullish mode, taking the pair deeper in to the pullback, to our targeted 0.5910 – 0.5920 technical analysis support area argument.

It was there that buyers did show up on Wednesday, likely on some mix of improving risk sentiment, end-of-month/quarter profit taking, positive U.S. data (durable goods) reigniting “soft landing” speculation.

Whatever the case may be, NZD/USD rallied hard in the latter half of the week, on both USD pullback and broad Kiwi strength), prompting a break of the strong area of interest around 0.5985, and then a test of the R2 Pivot resistance area.

Overall, this was a very successful price strategy call that likely yielded a positive result with a wide array of risk management strategies or styles.

We saw net positive AUD fundamentals on Wednesday with Australia’s monthly CPI rate ticking higher at 5.2% from a year ago in August. That’s higher than July’s 4.9% annual rate and above the 5.1% forecast! For RBA watchers, the high CPI rate was likely enough raise odds of another rate hike on the RBA’s table.

We also saw reports that the PBOC, government, and even China’s state banks are making efforts to support sentiment and the yuan’s value amidst property sector concerns in China.

All put together, we leaned bullish on AUD, and with market broadly ignoring jawboning from Bank of Japan officials all week, it was clear bearish yen sentiment was in play, making AUD/JPY the pair to watch, especially given it’s broad trend higher in September.

As the pair was already in pullback, we thought technical confluence area around the 95.00 major psychological area would draw in the trendline & pivot point traders, as well as fundie traders, especially risk sentiment started to lean bullish.

The dip did continue, but it wasn’t until 94.72 (just above the S1 pivot level) that buyers took back control. And with broad comdoll sentiment strengthening in the latter half of the week, AUD/JPY rocketed higher, not only reaching the noted potential resistance area around 95.75, but even further to the R2 pivot level!

Much like the NZD/USD setup above, with a solid risk management plan, this was a likely positive outcome, especially for those who planned a scale in strategy as the pair moved higher.

On Thursday, we saw that crude oil was continuing its march higher as it neared the $95.00/barrel handle, with market grumblings of a return to $100/barrel as a real possibility.  And with general sentiment that as oil goes, so goes the Canadian dollar, we continued to lean with CAD bulls overall.

But Euro area inflation updates showed stubbornly high rates of price growth, raising odds of a “higher for longer” interest rate environment, which we thought had the potential to life the euro higher on the session.

If so, this brings EUR/CAD to a strong area of interest that may potentially draw in sellers looking to play the strong longer-term downtrend, or fundie traders looking to buy strong Canadian fundamentals and the uptrend in oil (Canada’s largest export).

Our thought that if situation played out, we’d watch for bearish reversal patterns around the confluence of falling moving averages and Fibonacci retracement area before considering a play to the short side.

Well, the bounce did come and we did see resistance and some bearish candles at the Fibs / 100 simple moving average. This was a legit short trigger, but unfortunately EUR/CAD resumed its rally higher not too long after the bearish patterns.

This was apparently on both euro strength (likely off of EUR/USD rally) and broad CAD weakness (oil pulled back hard in the latter half of the week), and possibly some end-of-month/quarter profit taking on the massive downtrend that roughly saw EUR/CAD move over -4.40% in September.

Whatever the case may be, this price strategy on EUR/CAD likely lead to a negative outcome despite everything playing out as expected up to the trigger. That’s how the market goes sometimes, and why risk management is the most important skill in all of trading.

Losses happen for every risk manager, but even with the unfavored price bias at the end on EUR/CAD, a good risk manager would have limited the negative outcome and likely come out on top for the week if they saw positive outcomes on the other strategy discussions.

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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