The forex calendar was lined up with several inflation updates from around the globe, including the highly anticipated U.S. CPI update.

Our strategists focused on the U.S. CPI and Australian CPI updates, as both had the potential to create short-term momentum movements.

Overall, we thought that the discussions were net effective in supporting positive outcomes as two out of three discussions saw price move in line with valid setups.

But with how choppy price action was overall this week, risk management and execution were big factors towards actual trading outcomes.

If you’d like to follow our “Play of the Day” picks right when they are published throughout the week, you can subscribe to BabyPips Premium.

AUD/USD: Tuesday – Jan. 9, 2024

On Tuesday, AUD/USD was at the top of the watchlist with CPI updates from both Australia and the U.S. highly likely to drive up volatility in the pair.

The consensus was for a weaker Australian CPI and a stronger U.S. CPI, which seems to have been priced in ahead of the AU CPI event, so the higher probability move was for AUD/USD to dip lower.

But there were also arguments supported by leading indicators for stronger Australian CPI and weaker U.S. CPI reads, so we discussed strategies for both potential scenarios and how they may influence central bank expectations.

Both data points came out inline with the broad expectations, first with the Australian CPI printing at 4.3% y/y  vs. 4.9% y/y previous. The Aussie broadly popped higher on the release, a surprise reaction to most, but given that the Aussie was under pressure Monday and Tuesday, this may have been a “buy-the-rumor, sell-the-news” reaction.

Then on Thursday, the U.S. printed a stronger than expected CPI update, drawing in a much bigger reaction in AUD/USD, which understandably was an initial sell move on the pair as the immediate thought was that sticky U.S. inflation means a potential pushback on rate cut speculation.

Overall, we’d argue that this discussion was net effective as we said, “Based on consensus expectations for a weaker Australian CPI and a stronger U.S. CPI, the pair might be in for some downside. If this scenario plays out and risk-off flows extend their stay in the markets until the end of the week, AUD/USD might be in for a continuation of its downtrend to the latest lows or much lower.”

The bearish event scenario played out and the market closed the week at 0.6681 (after an intraweek low around 0.6650), which is below the strategy discussion price of 0.6710, so the probability of a positive outcome was likely.

Now, how effective would depend on the risk management plan, and for those who waited for a bounce up to the highlighted area of interest and resistance to hold ahead of the U.S. CPI event before shorting, likely did well.

And for those who took profits after the U.S. CPI at around 0.6650 when the U.S. dollar lost momentum, probably did the best overall.

AUD/NZD: Wednesday – Jan. 10, 2024

On Wednesday, AUD/NZD made it to the top of the watchlist after we thought the weaker-than-expected Australian CPI update had the potential to draw in fundamental Aussie sellers.  And when combined with the fact that the interest rate differential favored the Kiwi and that the price is in a strong downtrend, we thought the odds favored the possibility of more sellers jumping in on AUD/NZD this week.

Our strategy was to wait for the bounce to stabilize around the confluence of technical resistance arguments before considering a short position on the pair.

We saw that price action scenario play out not too long after we posted this strategy discussion, and after that, the pair moved all the way up to the 1.0770 area before the rally ended.

From there, the bears took full control of the market, bringing AUD/NZD all the way back down to our discussed target areas (Pivot Point and previous swing low/major psychological level), where it sat going into the weekend.

This discussion was arguably effective as the market moved in our favor to close the week well below the discussion price. But given the elevated volatility, risk management would have been a factor in the outcome.

A tight stop above our target resistance area would have likely resulted in a net  negative outcome, while a more conservative risk management plan (e.g., wide stop of at least one daily ATR or more, scaling into position) would have likely led to a positive outcome.

XAU/USD: Thursday – Jan. 11, 2024

On Thursday, the highly anticipated U.S. CPI event was right around the corner, and with the market on Gold (XAU/USD) consolidating around the $2,030.00 handle, we thought a simple triangle break setup in either direction were strategies to consider if the fundamentals supported the reaction.

Soon enough, the big event came, this time surprising traders as the actual December CPI headline reads came in above both the general consensus and previous reads. The U.S. dollar whipsawed on the initial release, but managed to stage a rally until the end of the London session.

It was there that sentiment reversed on the Greenback, possibly on short-term profit taking, or arguably, that the data wasn’t strong enough to deter the market’s hope of significant Fed rate cuts in the first half of 2024.

Whatever the case may be for the turn, XAU/USD caught additional buyers heading into the Asia session, likely a bullish gold move on geopolitical drivers.  This rally correlates with news of a joint strike from the U.S. and Britain against Houthi rebels in Yemen to deter further attacks on Red Sea shipping.

The outcome of this strategy discussion highly depends on the risk management plan employed and its execution.

With the U.S. CPI event coming in above expectations, a downside break was the valid technical trigger for a short position play. But the expected extended move didn’t play out, and the market actually reversed, making the only positive outcome scenarios being those where traders took profits at the London close.

Traders who may have held onto shorts after that likely saw a negative outcome, hopefully, a small one at that given the clear technical invalidation areas, or even on the shift in fundamental bias / driving sentiment at the end of the Thursday U.S. session.

Overall, given that the market didn’t move in favor of the fundamental and technical triggers, we’d argue that this discussion was not effective.