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With so many top tier catalysts this week, it was no surprise that volatility spiked beyond the average ranges and the steady stream of catalysts gave us some choppy price action.

But we’re pretty happy with the week as more often than not, our strategies anticipated the proper short-term direction, and our fundamental filters kept us out of unfavorable moves.

Forex Setup of the Week: Downtrend Continuation for AUD/CHF? – May 1, 2023

AUD/CHF 1-hour Forex Chart by TradingView

AUD/CHF 1-hour Forex Chart by TradingView

On Monday, we spotted a textbook technical setup on AUD/CHF, looking to play the likely rise in volatility for the Aussie dollar that the Reserve Bank of Australia (RBA) monetary policy statement will bring.

Our strategy was that “If the RBA pauses its rates and doesn’t signal enthusiasm to get back in the rate hike game” that may be enough to influence traders to sell some AUD after that one week bounce in AUD. But that’s only IF broad risk sentiment is leaning towards risk aversion, as that may draw in some CHF buyers looking for a “safe haven”

Unfortunately for Aussie bears, the RBA totally surprised the market with a rate hike, sending the Australian dollar higher against the majors, and AUD/CHF up roughly 1.33% on the event.

The pair eventually did top out, but well above the bearish technical arguments we highlighted in the post.

It was there that risk sentiment shifted dramatically on Tuesday as after weaker-than-expected JOLTS job openings data from the U.S. signaled a weakness in the employment sector.

This shift in risk sentiment is likely why AUD/CHF fell dramatically during the Tuesday and Wednesday U.S. session, likely helped along by the FOMC statement (Powell ruled out the idea of rate cuts once again during the FOMC press conference) and the announcement of another regional U.S. bank, PacWest, announcing a possible sale, re-sparking bank fears in the process.

Overall, due to our fundamental filters (no rate pause), we avoided that initial spike higher that could have been a quick net loser for those who took the short side with an aggressive risk management strategy.

EUR/JPY: Tuesday – May 2, 2023

EUR/JPY 1-Hour Forex Chart by TV

EUR/JPY 1-Hour Forex Chart by TV

On Tuesday, we discussed a potential setup on EUR/JPY ahead of the highly anticipated European Central Bank’s monetary policy statement for May.

Our strategy idea was to potentially play the pair to the upside after a pullback IF the ECB signaled they would continue to stay aggressive on monetary policy tightening and bullish reversal patterns formed around the SMAs and Fibs.

Unfortunately for the bulls, our bearish scenario discussed in the post played out as the ECB signaled a slower pace of tightening ahead given concerns with slowing lending conditions in the Euro area.

Along with the risk aversion vibes mid-week sparked by weak U.S. data, the FOMC, and banking crisis fears to push the yen broadly higher, EUR/JPY smashed through that highlighted technical area with ease.  And since we stuck to our fundamental filters, we avoided that potential hit as well.

DXY: Wednesday – May 3, 2023

U.S. Dollar Index 1-Hour Forex Charts by TV

U.S. Dollar Index 1-Hour Forex Charts by TV

On Wednesday, we were bearish biased on the U.S. Dollar Index, citing the various themes that were likely to continue to put pressure on the Greenback.

The most notable was an upcoming FOMC rate hike that would likely bring in sellers who see higher interest as a negative impact on the U.S. economy.

We also cited that if the ADP private payrolls and ISM PMI Employment data didn’t point to a strong U.S. jobs environment, then USD could draw in sellers if it broke below the rising channel on the 1-hour chart highlighted in the previous post.

Well, the FOMC event came and it pushed the DFX lower to nearly retest the 101.00 handle on the session. But the drop pretty much ended there, likely due to profit taking or risk reduction ahead of the Friday U.S. jobs report.

As expected based on the leading U.S. jobs indicators, that report came in hot like fire and pushed the Greenback higher quickly after the release.

This was actually another selling opportunity as DXY hit a selling wall around the 101.70 handle, taking it back to near the week’s lows before the Friday close.

Gold (XAU/USD): Wednesday – May 3, 2023

Gold (XAU/USD) 1-hour Chart by TV

Gold (XAU/USD) 1-hour Chart by TV

Aside from the Greenback, we were closely watching gold on Wednesday after it broke above sideways trading behavior (ranging between $1980 – $2005) that ran through the latter half of April.

Our base strategy was the basic idea that if the FOMC hinted at interest rate hike pauses or a slow down in the rate of rate hikes, USD could take a hit and validate that upside break in XAU/USD.

That seems to have played out and fortunately for gold bulls, they likely got an extra little bullish boost from a resurgence in banking sector fears (after Pacwest announced a potential sale as discussed earlier) a theme that usually benefited hard assets like gold.

XAU/USD rallied by as much as 2.78% after the consolidation break from the $2015 area and tested $2067 before giving most of it back after a hot U.S. employment update on Friday.

Congrats if you were able to catch that initial upside break and take profits ahead of the NFP report!

NZD/JPY: Thursday – May 4, 2023

NZD/JPY 1-hour Forex Chart by TV

NZD/JPY 1-hour Forex Chart by TV

On Thursday, we spotted another bearish yen setup, this time against the NZ dollar. From a technical analysis standpoint, NZD/JPY was pulling back after a strong spike higher last week, and began to see support at the broken resistance area/Fibonacci retracement area highlighted on the one hour chart.

While we didn’t cite a specific event to potentially push the pair in favor of our long bias, but we thought that if risk sentiment shifted back towards positive this week, that would be enough to draw in the bulls back to NZD/JPY.

Despite only a slight return to broad risk-on sentiment, NZD/JPY was still able to find buyers at the technical area highlighted around 83.50.  And with no specific NZD or JPY news catalysts, NZD/JPY was able to put together a solid rally, nearly testing 85.00 before the weekend.

USD/JPY: Thursday – May 4, 2023

USD/JPY 1-Hour Forex Charts by TV

USD/JPY 1-Hour Forex Charts by TV

We also saw a potential opportunity in USD/JPY on Thursday, this time a setup that could draw in buyers in reaction to the highly anticipated monthly official U.S. employment update.

The idea was that the pair could draw in buyers if the U.S. employment report came in strong, likely to draw in possible buyer in the area aligned with the pivot point S1 level, Fibonacci retracement area, and the previous consolidation area around 134.00.

Well, the jobs number did come in hot as expected, prompting a big bounce from the 134.00 handle to test and find resistance around the 135. handle.

For those who played the long side ahead of the event took a big gamble, and it seems to have paid off nicely, especially if you had a risk management plan that kept a tight stop and big profit target.

For those who were more conservative and waited for the hour candle to close to make moves, it’s not likely you’ll see a resolution in this trade until next week. But at the moment, this could be a setup for strong swing play until we get fresh data pointing to more U.S. slowing ahead.

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.