This week our forex strategists centered on inflation and GDP knowledge, particularly from Australia and the U.S. for potential top quality setups.
Out of the 4 state of affairs/value outlook discussions this week, two discussions arguably noticed each fundie & technical arguments triggered to grow to be potential candidates for a commerce & threat administration overlay. Take a look at our evaluation on these discussions to see what occurred!
Watchlists are value outlook & technique discussions supported by each elementary & technical evaluation, a vital step in direction of making a top quality discretionary commerce thought earlier than engaged on a threat & commerce administration plan.
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GBP/AUD 1-Hour Foreign exchange Chart by TradingView
On Tuesday, our strategists had their sights set on the Australian CPI replace for July 2024 and its potential influence on the Australian greenback. Primarily based on our Occasion Information, expectations ranged from a dip to three.6% to three.4% year-on-year, down from the sooner 3.8% annual CPI studying. Whereas this could be favorable for the Reserve Financial institution of Australia’s objectives, even at 3.4% y/y, the speed of value development continues to be uncomfortably excessive.
With these expectations in thoughts, right here’s what we had been considering:
The “Aussie Avalanche” State of affairs:
If the CPI got here in as anticipated or decrease, we figured the RBA would possibly begin eyeing these fee minimize scissors. This might attract elementary AUD sellers, drawing us to AUD/CAD which lately noticed an uptrend damaged. This state of affairs might attract technical sellers together with fundie gamers on this state of affairs.
The “Kangaroo Bounce” State of affairs:
If Australia’s inflation development got here in hotter than anticipated, we thought the RBA would possibly maintain their neutral-to-hawkish stance. This may very well be AUD patrons’ time to shine, prompting a have a look at GBP/AUD for potential brief methods because the pair retested (and was discovering resistance) on the high of its latest ranging conduct.
What Really Occurred
Nicely, people, Wednesday rolled round, and Australia’s CPI replace determined to provide us combined indicators. The info from the Australian Bureau of Statistics (ABS) confirmed that inflation in Australia rose by 3.5% y/y in July, slower than June’s 3.8% improve and the bottom since March, however larger than the three.4% uptick that markets had anticipated.
Key factors from the CPI report:
- Excluding unstable gadgets, CPI slowed down from 4.0% to three.7% from a 12 months in the past in July.
- RBA’s trimmed imply inflation got here in at 3.8%, decrease than the 4.1% annual improve in June and marked the bottom since early 2022.
- Housing (+4.0%), Meals and non-alcoholic drinks (+3.8%), Alcohol and tobacco (+7.2%), and Transport (+3.4%) noticed the most important good points for the month.
Market Response
The cooler-than-expected – however nonetheless elevated – July inflation replace initially boosted the Aussie. This triggered our arguments for a GBP/AUD brief bias, and we are able to see that the pair noticed a right away drop following the CPI launch, falling from across the 1.9500 degree in direction of the pivot level (P) at 1.9413.
The pair’s downward momentum was considerably supported by broader market dynamics. The danger-off sentiment that prevailed mid-week, which had initially supported the pound, started to wane and certain convey extra curiosity within the Aussie over Sterling. However, we noticed weak capex knowledge from Australia on Thursday and stagnant retail gross sales knowledge on Friday, which had been possible placing the caps on the Aussies bull run.
By the top of the week, GBP/AUD was hovering across the 1.9400 degree, having discovered supported simply above the S1 (1.9290) pivot assist space earlier than hitting a wall of bears across the pivot level (P) at 1.9413 we had recognized.
The Verdict
So, how’d we do? In our unique dialogue, we talked about potential brief setups on GBP/AUD if the AU CPI got here in web optimistic, which it did. If that technique was adopted, it’s “possible” that it was supportive of a web optimistic final result, provided that the market noticed robust bearish momentum and closed beneath each dialogue and occasion value areas on the Friday shut.
For many who leaned bearish on GBP/AUD when each elementary and technical arguments had been triggered on Wednesday, they possible noticed the very best potential return on threat, and those that waited for the trendline break additionally possible set web good points, even when they didn’t handle the optimistic for a revenue when it began to backside out beneath the 1.9350 deal with.
USD/JPY 1-Hour Foreign exchange Chart by TradingView
On Wednesday, our strategists had their sights set on the U.S. Preliminary GDP launch for Q2 2024 and its potential influence on the U.S. greenback. Primarily based on our Occasion Information for Q2 2024 U.S. GDP, the markets had been anticipating little to unfavorable revisions from the superior 2.8% q/q studying. Primarily based on that, we had two principal situations in thoughts:
The “Greenback Dive” State of affairs:
If the GDP got here in as anticipated or decrease, we figured the Fed would possibly lean extra in direction of a September fee minimize, probably a bigger 50 foundation level transfer. This might attract elementary USD sellers, and we had our eyes on AUD/USD for this explicit state of affairs, given the pair’s upward momentum and up to date robust Australian CPI knowledge.
The “Buck Acquire” State of affairs:
If the U.S. GDP stunned to the upside, we thought this might ease U.S. recession issues and enhance the greenback. We had been watching USD/JPY for this state of affairs, because the pair’s latest conduct had been displaying indicators of a possible reversal from its latest downtrend.
What Really Occurred
Nicely, Thursday rolled round, and the U.S. GDP determined to throw us a curveball that will make even Shohei Ohtani proud. The second model of the U.S. GDP studying was upgraded to indicate a quicker 3.0% enlargement in Q2 2024, surpassing each the initially reported 2.8% determine and market expectations.
The optimistic revision largely got here from larger client spending on providers and items, significantly gasoline and different vitality commodities. Nevertheless, elements like non-residential fastened funding, exports, and personal stock funding had been downgraded.
Including to the dollar-positive sentiment, the preliminary value index for a similar interval was upgraded from 2.3% to 2.5%, exceeding expectations of an unchanged studying. The core PCE value index (excluding meals and vitality) noticed a slight downgrade to 2.8% from the preliminary 2.9% estimate.
Market Response
The market response was swift and decisive, aligning completely with our “Buck Acquire” state of affairs. USD/JPY, which had been consolidating in a triangle sample on the hourly chart, broke out to the upside following the GDP launch.
Taking a look at our USD/JPY chart, we are able to see that the pair certainly noticed a right away bounce following the GDP launch, climbing from across the 144.50 degree and breaking via the 145.00 “neckline” we had recognized in our unique dialogue. The pair continued its ascent, pushing previous the 145.50 Pivot Level and reaching in direction of the R1 degree at 146.91.
The stronger-than-expected GDP knowledge, coupled with the upward revision within the value index, considerably lowered market expectations for aggressive Fed fee cuts. This shift in sentiment offered robust assist for the greenback throughout the board, however significantly towards the yen, which had been beneath stress because of the Financial institution of Japan’s continued extensive rate of interest differential with the main central banks.
Curiously, the USD/JPY rally prolonged nicely into Friday’s session, fueled by extra optimistic U.S. financial knowledge. The discharge of the core PCE value index (the Fed’s most popular inflation gauge) confirmed persistent inflationary pressures, additional dampening expectations of near-term fee cuts and offering extra momentum for the greenback.
The Verdict
So, how’d we do? In our unique dialogue, we talked about waiting for bullish candlesticks above the 145.00 “neckline”, 100 SMA, or the 145.50 Pivot Level space for clues of an upside breakout. If that technique was adopted, it’s “extremely possible” that this dialogue supported a web optimistic final result.
For merchants who executed based mostly on this outlook, there have been a number of alternatives to capitalize on the transfer:
- An preliminary entry may have been taken on the break above the 145.00 “neckline”, with a cease loss beneath the breakout level.
- Merchants may have added to their positions or entered on a retest of the 145.50 Pivot Level.
- Extra conservative merchants may need waited for the break above the latest swing excessive round 146.00 earlier than getting into, and nonetheless captured some pips earlier than the weekend.
In all instances, the robust momentum offered ample alternative to path stops and seize a good portion of the transfer.