Our forex strategists were feeling the Comdolls this week, focusing on major inflation updates from Australia and Canada.
Out of the four scenario/price outlook discussions this week, two discussions saw both fundie & technical arguments triggered to become a potential candidate for a risk management overlay. Check out our review on that discussion to see what happened!
Watchlists are price outlook & strategy discussions supported by both fundamental & technical analysis, a crucial step towards creating a high quality discretionary trade idea before working on a risk & trade management plan.
If you’d like to follow our “Watchlist” picks right when they are published throughout the week, you can subscribe to BabyPips Premium.
EUR/CAD: Monday – June 24, 2024
EUR/CAD 1-Hour Forex Chart by TradingView
On Monday, our strategists started out with a look at the Canadian dollar, focusing on the upcoming Canadian CPI update as the catalyst for likely big moves on the Loonie.
According to our Event Guide on the Canadian CPI release, expectations were for that the latest data would signal a continue deceleration trend in inflation growth, supporting recent market speculation of the Bank of Canada cutting interest rates in July.
If that event scenario played out, we were watching for an upside break of a descending triangle developing on USD/CAD for short Loonie setups. Now, if the latest Canadian CPI surprised the markets with a hotter read, then we had the downtrend in EUR/CAD on the watchlist for a bullish Loonie play, a good matchup given the recent weak PMI’s and political uncertainty from the euro area having the potential to keep euro bears in play.
Well, the Canadian CPI update came in hotter than expected as headline inflation accelerated from 2.7% year-on-year to 2.9% in May. This prompted a big spike higher in the Loonie right off the jump, and with sustained traded below the 1.4650 minor psychological area, our short EUR/CAD fundamental and technical arguments were triggered in the process.
The spike was short-lived, though, retracing half of the move within the first hour, and giving up a bit more as the week went on. This was likely more due to euro strength as ECB officials downplayed rate cut expectations this week than “buy the rumor, sell the news” behavior, given the broad move higher in the euro starting on Wednesday.
So, timing, risk and trade management were very big factors on whether this discussion was supportive of a net positive outcome. We mentioned that EUR/CAD could move higher ahead of the Canadian CPI event, which it did, and for those who shorted there after resistance formed, likely saw very positive results, especially if the took profit soon after the CPI release.
For those who short immediately after the event, odds are they may have seen a net negative outcome, again, highly depending on the trade structure used. And for those who waited and shorted later in the week after the bounce, odds are those risk managers saw a small net positive outcome.
Overall, with the markets reacting as expected after the event, but choppy price action and euro strength forming, we’d argue that this discussion was likely “neutral to net negative” in supporting a potential positive outcome.
EUR/AUD: Tuesday – June 25, 2024
EUR/AUD 1-Hour Forex Chart by TradingView
On Tuesday, the Aussie rose to the top of the watchlist as the latest CPI update from Australia was right around the corner. Our Event Guide for the Australia CPI update showed that the latest data pointed to an outcome showing inflation remaining “sticky” high in May.
If that was the outcome to be, our strategists were watching the downtrend in EUR/AUD for a potential long Aussie play, once again, due to the recent weak PMI’s in the Euro area likely to keep rate cut speculation afloat for the euro.
In the scenario where Australian CPI data showed disinflation (likely reducing the odds of the RBA keeping rates elevated), then we turned to the AUD/USD pair for short Aussie setups, given the current outlook that the Fed will have to do less rate cuts in 2024 than previously thought.
Well, the big day for the Aussie came and as expected, inflation data showed not only a sticky high inflation environment in the Land Down Under, but prices grew at a faster pace than expected at 4.0% — a six month high!
This obviously supports likely hawkish rhetoric ahead for the Reserve Bank of Australia, so it was no surprise that the Aussie spiked higher against all major currencies, and likely why AUD closed as the best performer this week among the major currencies.
And in EUR/AUD specifically, the pair spiked lower on the initial release, and then drew in more sellers in the following five hours before finding support just above the S1 Pivot support level, and as broad euro strength started to develop.
That euro strength was enough to take the pair back to pre-Australian CPI event levels and the weekly Pivot Point area, which apparently was a strong selling area as traders pushed the pair back down quickly on Friday, possibly on a shift back to monetary policy / interest rate divergence between the RBA and ECB before the weekly close.
So much like EUR/CAD above, with choppy price action following the event, risk and trade management would have been a factor in determining whether or not this discussion was supportive of a positive outcome. Given that there was time to short after the event and grab that full move down, as well as another opportunity to short at the pivot point after the euro rally, we’d argue that this discussion was “neutral to likely” being supportive of a net positive outcome.
Too tired or lazy to journal? Check out TRADEZELLA! It’s an easy-to-use analytics & journaling tool that can lead to valuable performance & strategy insights! The app also features tools like trade replay & backtesting to help improve performance and sidestep avoidable mistakes. Click here to see if it’s right for you!
Disclaimer: Babypips.com earns a commission from any signups through our affiliate link. When you subscribe to a service using our affiliate links, this helps us to maintain and improve our content, a lot of which is free and accessible to everyone–including the School of Pipsology! We appreciate your support and hope that you find our content and services helpful. Thank you!
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.
