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Play of the Day Recaps: Sept. 18 – 21, 2023

It was an incredibly challenging week for forex playas with an extremely busy calendar on hand, laced with four major central bank statements!

Despite the difficulty of anticipating price in that environment, our strategists did a pretty good job of anticipating the correct directional biases.

And they pointed out several significant chart patterns to watch and consider before traders move on to structure their own risk management plans.

Missed the action?! Read on for a detailed review to see how fundamentals influenced prices and how they behaved around the technicals!

On Monday, we were leaning net short on GBP/CHF as the market had been forming a pattern of lower highs and lower lows, coinciding with a cooling of U.K. inflation and recent commentary from Bank of England officials that tighter monetary policies may not be necessary. At the time the pair is trading around the 1.1125 zone / mid-channel after bouncing back from its intraday lows of 1.1080.

Our outlook on whether the trend may continue would hinge on the upcoming U.K. CPI report, which was expected to show a faster headline reading and a steady core CPI. Additionally, we noted both the BOE and SNB were set to announce their monetary policy decisions later in the week, with expectations of interest rate hikes by both central banks.

Our fundamental thought was that GBP may not draw strong support from higher inflation / interest rates if traders become more concerned about the potential impact on the U.K.’s economic growth.

In such a scenario, GBP/CHF had a chance to continue its downtrend, potentially revisiting its recent lows around 1.1080 or even forming new monthly lows in the coming days.

Given the slew of top tier events, we leaned cautious in our strategy, opting to wait-and-see if bearish reversal candlestick patterns emerged near the 1.1130 Pivot Point / SMA area.

Sellers actually held that Pivot Point / SMA area like a champ, and thanks to a lower-than-expected inflation updated from the U.K., GBP/CHF dropped like a rock during the Wednesday London session.

For those who day traded that setup and thought to take profits due to more top tier events ahead for the pair, you likely had the best outcomes on this price strategy, of course depending on your risk management plan and how you executed.

For those who held on through the week, you may have seen a positive outcome if your risk management plan accounted for the foreseen rise in volatility with the central bank events, which we will touch on further in our second GBP/CHF recap below.

On Tuesday, we thought that the upcoming inflation updates from Canada would bring solid volatility to the forex markets, and with expectations of a likely faster rate of prices rising, we looked for long CAD setups for the session.

That brought us to NZD/CAD, which has been in a downtrend recently, characterized by the lower highs and lows seen on the one hour chart, regularly making new fresh lows in September

On the other side of the coin, we saw that the People’s Bank of China (PBOC) Prime loan rate setting was also coming and considered it a potential catalyst as China news tends to have some influence on the comdolls.  Our thought was that if the PBOC kept prime loan rates unchanged as expected, that could pull some risk-on bets away from the Kiwi.

If those fundamental scenarios played out, we thought that the 0.7990 area (falling moving averages and pivot point confluence) was a good area to watch for bearish reverse candles, a setup that may draw in further sellers.

First, Canadian inflation data came out hotter-than-expected, prompting an immediate drop in NZD/CAD to the S1 level, where it immediate drew in buyers. Broad risk sentiment also leaned positive at the time, which likely brought in more buyers to Kiwi than the Loonie during the afternoon U.S. session.

Next, the People’s Bank of China (PBOC) Prime loan rates were held as expected, bringing in mild selling during the Wednesday Asia session. But the pair saw big volatility during the following London and U.S. sessions, likely related to traders repositioning before and after the highly anticipated Fed event. Their hawkish tone actually benefitted our strategy as the risk-off lean had traders selling more Kiwi than Loonie by the end of the session.

This downtrend was momentarily interrupted by much better-than-expected New Zealand GDP data on Thursday, and by Friday, NZD/CAD bulls took back the reins as traders were broadly bullish on the Kiwi, outweighing Loonie strength and the bounce in oil prices.

Overall, the outcome of our original strategy discussion largely depends on the risk management plan and execution. Those who applied day trading / scalping risk management strategies to our price outlook, and/or were more conservative with their entries had a more likely chance of seeing a positive outcome. Those who held through the week and/or were more aggressive with short entries likely saw a negative outcome with this discussion.

On Wednesday, the U.K. inflation update surprised forex traders with a net weaker-than-expected read on consumer price growth. This was immediately met with Sterling sell orders as traders lowered the odds of the Bank of England hiking on Thursday, pushing the pound to intraweek lows against many of the majors.

So we stayed net bearish on Sterling, and to counter that, we chose the Swiss Franc, which was also expected to see some volatility, potentially beneficial for the bulls as expectations were the Swiss National Bank (SNB) would raise interest rates this week to 2.00%. We did see a possibility that the SNB could hold their key interest rate at 1.75%, but decided to lean with market expectations.

As far as price outlook, we discussed several technical scenarios for readers to consider, including a sustained downside break of the S1 (1.1080) support area, and a bounce scenario of waiting to see if the area between the Pivot Point and R1 would present another opportunity to play the downtrend at better prices.

The market was surprised by the SNB as they did hold interest rates at 1.75%, but did comment that the door is open for further rate hikes if needed. This is likely why the selloff in the franc was capped and reversed during the London session. The R1 resistance line held and kept the downtrend alive.

Soon after, the Bank of England held their main policy rate at 5.25% with a 5-4 vote, a somewhat expected outcome given the weaker-than-expected U.K. inflation update just a day earlier. This prompted further selling in GBP/CHF back to the strong support area around the 1.1080 handle.

The sustained downside break scenario never materialized, so this price strategy discussion was likely positive for those who leaned with trying to play the trend at higher prices AND accounted for the potential rise in volatility into their risk management plan.

Our strategists were looking to ride fresh Dollar strength sparked by the hawkish Fed event, and with the latest monetary policy statement ahead from the Bank of Japan (BOJ), we thought USD/JPY was a good pair to watch on Thursday.

Expectations for the BOJ’s statement were that they would keep the main policy rate ultra low at -0.10%, despite recent signals that inflation rates were staying elevated in Japan. If this was the case, fundamental traders would likely keep the uptrend in USD/JPY going.

But after a big Fed event pump, our thought was that profit taking was likely in the cards for USD/JPY, and that if we saw a pullback, that would be the time to get ready to play the uptrend at better prices.

We kept on watch for bullish reversal patterns around the rising moving averages and Fibonacci retracement areas as a behavior pattern that may draw in further buyers.

Well, the pullback did come and it was deeper than we expected, going all the way to the rising 200 SMA / previous swing low before buyers stepped in to hold the uptrend intact. Soon after, the BOJ event did play out as expected and yen sellers jumped back on the train quickly, sending USD/JPY higher.

Overall, we anticipated the price behavior on this one pretty well, but the risk management plan used would have ultimately been the determining factor on the outcome as that pullback was deeper than our initial target entry area, but not beyond the simple moving averages.

Those who waited for stability behavior after the pullback likely saw a positive outcome, and those who risk management a tight stop in that area likely saw an R:R of at least 2:1 or more.

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