With the usual round of early month, top tier U.S. events hitting the wires, our FX strategists focused on USD events this week with strategy discussions on USD/CHF & EUR/USD.
It was arguably a very effective week for both strategies as our fundamental setups triggered and the markets spent some time in favorable price areas ahead of NFP Friday.
USD/CHF: Wednesday – Jan. 3, 2024
USD/CHF 1-Hour Forex Chart by TradingView
On Wednesday, we saw a steady rise in the Greenback across the board, potentially signs of the markets lightening up on Fed rate cut bets, as well as possibly some safe haven flows due to rising Middle East conflict.
We thought that the volatility wasn’t over yet for USD with ISM manufacturing PMI, JOLTS jobs numbers, and FOMC meeting minutes coming from the U.S. ahead, so we discussed potential reaction strategies for both the bulls and the bears USD/CHF, getting ready for however the top tier events may support or push back on the Fed rate cut narrative.
ISM manufacturing PMI showed contractionary business conditions once again, while JOLTs came in pretty close to expectations, arguably net negative for the Greenback, as shown by the turn lower in USD/CHF on the event.
The FOMC meeting minutes then came just a few hours later, and while rate cuts were mentioned, it apparently wasn’t dovish enough for USD bears, shown by the lack of a momentum move lower after the event.
Arguably, our bearish USD bias was triggered with the contractionary ISM manufacturing PMI update, and the strategy outcome may have lead to a slight net positive outcome as USD/CHF did end the week lower relative to the trigger/PMI event bar.
But with U.S. NFP whipping dollar pairs around on Friday, somewhat as expected by our Event Guide, a trade outcome would have likely highly depended on the risk management plan, most likely decisions on whether or not there was a decision to take profits ahead of NFP, how tight of a stop was used if held through NFP, etc.
EUR/USD: Thursday – Jan. 4, 2024
EUR/USD: 15-min Forex Chart by TradingView
On Thursday, we eyed the technical downtrend on EUR/USD for a potential short-term play, which fit the fresh reaction to a not-so-dovish FOMC meeting minutes environment and the upcoming CPI data from Germany and France ahead.
Our main focus was that if the pair continued to bounce to our target resistance area (R1 (1.0960) Pivot resistance / previous broken support area) AND we saw bearish fundamental catalysts, then we’d be on the look out for bearish reversal candles as a signal more selling may be ahead.
Well, both Germany and France did print 0.1% m/m Preliminary CPI reads (below 0.2% m/m expectations), and both ADP U.S. Private Payrolls and weekly initial jobless claims came in better-than-expected, triggering the fundamental conditions required for a short bias.
EUR/USD actually bounced not too long after the U.S. reports, but the target resistance area around the R1 Pivot resistance held like a champ, and it was all downhill for EUR/USD through the rest of the session and the following Asia/London session.
Given that our fundamental arguments triggered, the target resistance area held, and the market moved almost one daily ATR lower, it’s highly likely that this strategy discussion lead to a net positive outcome.
But as always, the risk management plan would have been a factor due to the U.S. NFP report. If some/all profit wasn’t taken ahead of the NFP event (or during the initial NFP spike lower), then the result could have been very much different or even negative, depending on how the position was managed in real-time.
