With that fresh bearish sentiment in play, we paired that with the Swiss franc, which had a major event coming up, the Swiss National Bank’s monetary policy statement, but expectations were relatively high that they would hold off on any changes (although there was a small argument they may cut).
Euro area and U.K. PMIs were mixed and sparked a net bearish reactions in both the euro and Sterling, but based on our observation of EUR/GBP, the euro took the bigger hit, bringing the pair to the bottom of the range around 0.8530. This is where buyers stepped in once again and took the pair higher, breaking the top of the range before the BOE event.
We paired it with the British pound as the GBP/NZD pair has been on a solid uptrend and with with potential volatility coming from the Bank of England’s (BOE) policy decision, we thought there would be plenty of short-term opportunities in the pair to look out for. The potential for a shift to more dovish voting patterns within the MPC was a scenario we considered, which could bring the pair down to better buying levels to play the uptrend.
On Thursday, we saw that EUR/GBP was in consolidation mode, likely traders staying on the sidelines ahead of the crucial Bank of England (BOE) policy decision and flash manufacturing and services PMIs from both the Euro area and the U.K. Recent U.K. economic updates have been signaling lower inflation growth trends, which had us leaning in the camp that anticipated a potential shift towards a more dovish stance from the BOE.
AUD/CHF climbed back into the middle of the consolidation range, then suddenly went on a wild ride thanks to surprisingly good Australian jobs numbers. It smashed through the resistance and kept on running, even before the SNB’s surprise rate cut on Thursday sent it soaring higher.
If Aussie sentiment stayed bearish, then our price action trigger to watch was a sustained break below the strong support area just under the 0.5800 major psychological handle. We thought that this behavior could potentially draw in technical sellers and take the market to the S1, S2, or S3 pivot areas.
On Tuesday, we observed a bearish reaction to the latest Reserve Bank of Australia (RBA) monetary policy statement, where they held interest rates steady but their statement struck a less hawkish tone than before.
The pair actually continued to trend lower leading up to the highly anticipated BOE event, which come out dovish as the shift in voting did play out as mentioned in our Event Guide and original strategy discussion. The bearish reaction did bring the pair to the targeted Fibonacci retracement area we were watching to play the uptrend.
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And vice versa, the possibility of lingering hawkishness within the BOE, given persistent inflation, was non-zero. If at least one hawk pushes for a rate hike, or the sole dove shifts to neutral, it could derail expectations of rate cuts, potentially triggering a bullish reaction in Sterling.
The Kiwi has been suffering from bearish sentiment recently, fueled by a gloomy economic outlook from New Zealand’s Treasury, which made the approaching release of quarterly NZ GDP a potential market mover. Market expectations were for the downtrend in economic activty to continue, which had us leaning bearish on the New Zealand dollar this week.
Two out of three discussion were arguably net effective towards positive outcomes. Check out our reviews to see what happened and why we think they were likely helpful!
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AUD/CHF took a tumble below major support, but the move was limited as buying pressure came in right at the S1 Pivot. Then, out of nowhere, the pair did a complete 180 – no fancy news required. Maybe it was a whiff of risk appetite in the air, or maybe those gloomy Swiss economic forecasts got everybody down, making the Aussie look good by comparison. And hey, there was even a whisper about the SNB potentially cutting the main interest rate, adding fuel to the fire.
Additionally, we also touched on the upcoming eurozone and U.K. flash PMI readings, which could stir volatility before the BOE event. So we thought it was a good idea to stay prudent and wait for the BOE decision and the market’s reaction before determining a direction bias and solidify a trade plan.
Given our bullish lean, our fundamental and technical arguments were triggered, and the one Daily ATR move higher after the BOE, we’d rate this discussion on EUR/GBP as highly likely supportive of a positive outcome, as there was likely little need for complex risk and trade management on this particular situation in our opinion.
We rated it closer to neutral as the market didn’t make it all the way down to the ideal technical buying area, so individual risk and trade plans would have been a bigger factor on the outcome. For those who may have been aggressive with their entry (or had a scaling plan starting at the 38% Fib), likely did well on this price action.
Buyers did appear strongly at the Fibs during the Friday Asia session, correlating to news of China its daily yuan fix lower than expected, which hurt NZD and AUD, unfortunately this was before the pair could hit our targeted 50% – 61% Fib levels that we thought had the highest probability of drawing in technical buyers given several chart confluences.
The main expectation was that the BOE would still hold interest rates as the overall inflation environment is still above the target, so we thought that traders will be closely watching the MPC voting breakdown for clues about future rate moves. If dovish sentiment strengthens within the MPC, indicating potential rate cuts, this could fuel a bullish breakout in EUR/GBP.
And as mentioned above, the BOE event was net bearish for Sterling, thanks to two previously hawkish members moving to the hold camp. EUR/GBP traded higher from there (likely with the help of arguably bearish U.K. retail sales data & net positive German Ifo data) to hit the 0.8600 major psychological level during the Friday London session, before being hit with profit taking ahead of the weekend close.
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U.K. CPI came in weaker than expected but wasn’t a big momentum driver for the pair, and New Zealand GDP disappointed but the spike higher in GBP/NZD off of that news was quickly met by sellers. That reaction was most likely a combo of “risk-on” traders after the risk positive reaction to the FOMC meeting and possibly some traders repositioning Sterling ideas ahead of the BOE event.
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Based on our expectation of the BOE event to take the pair to an ideal buying area, that area drawing in buyers (but on an unexpected event from China), and a 100 pip rally at its peak, we’d rate the strategy discussion “neutral to likely.”
Our strategists tackled a very tough week of several major central bank events, focusing mainly on the Bank of England event and the Reserve Bank of Australia.
So, our strategy and price outlook were invalidated with the positive Australian jobs numbers, leading us to believe that this discussion wasn’t supportive of a positive outcome. The positive Australian jobs numbers and upside break of previous consolidation did lead to a strong bullish run, and we hope that some of you were able to catch that.
