This week our foreign money strategists targeted on the Australian This fall 2024 CPI report and FOMC financial coverage assertion for potential high-quality setups within the Kiwi and U.S. Greenback.
Out of the eight situation/value outlook discussions this week, two discussions arguably noticed each fundie & technical arguments triggered to change into potential candidates for a commerce & danger administration overlay.
Watchlists are value outlook & technique discussions supported by each elementary & technical evaluation, an important step in the direction of making a top quality discretionary commerce thought earlier than engaged on a danger & commerce administration plan.
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AUD/JPY: Monday – January 27, 2025
AUD/JPY 1-Hour Foreign exchange Chart by TradingView
On Monday, our strategists had their sights set on Australia’s This fall 2024 CPI replace and its potential affect on the Australian greenback. Based mostly on our Occasion Information, expectations have been for inflation to ease from 2.3% y/y to 2.5% y/y, whereas quarterly inflation was anticipated to tick down from 0.3% q/q to 0.2% q/q.
With these expectations in thoughts, right here’s what we have been pondering:
The “Aussie Advance” Situation:
If the CPI knowledge got here in hotter than anticipated, we anticipated this might push RBA price reduce expectations additional into the long run. We targeted on AUD/USD for potential lengthy methods if danger sentiment was optimistic, notably given decreased expectations of aggressive Fed price cuts. In a risk-off setting, EUR/AUD shorts made sense given the ECB’s normal dovish stance forward of their anticipated price reduce.
The “Aussie Avalanche” Situation:
If Australian inflation figures disenchanted, exhibiting vital cooling in value pressures, we thought this might gas RBA price reduce expectations. We thought-about AUD/NZD for potential quick methods in a risk-on setting, particularly given New Zealand’s latest uptick in inflation expectations. If danger sentiment leaned damaging, AUD/JPY quick regarded promising given the BOJ’s latest hawkish flip and rising safe-haven demand.
What Truly Occurred:
The This fall 2024 CPI report confirmed notably web weaker value pressures:
- Quarterly CPI got here in at 0.2% vs 0.3% anticipated
- Annual headline CPI ticked as much as 2.5% as anticipated from 2.3%
- Trimmed imply CPI (core) eased to 0.5% q/q from 0.8% earlier
- Companies inflation remained elevated however eased to 4.3% yearly
- Non-discretionary inflation fell to 1.8%, lowest since March 2021
Key drivers included:
- Electrical energy costs fell 9.9% q/q attributable to Power Invoice Reduction Fund rebates
- Housing and transport prices each declined 0.7%
- With out rebates, electrical energy costs would have risen 0.2% q/q
Market Response:
This end result essentially triggered our AUD bearish situations, and with danger sentiment leaning damaging following Trump’s tariff threats and China’s AI breakthrough information, AUD/JPY grew to become our focus.
Trying on the AUD/JPY chart, we noticed speedy promoting stress after the weaker CPI knowledge, with the pair breaking beneath the minor assist space round 97.00 on Monday and Tuesday.
The bearish momentum gained further gas from BOJ Deputy Governor Himino’s feedback about potential additional price hikes, driving AUD/JPY towards the S2 pivot assist space (95.88) close to January’s lows. That’s the place we noticed the intraweek backside and reversal, doubtless pushed by broad risk-on vibes and BOJ Governor Ueda tempering price hike expectations a bit on Friday.
The Verdict:
So, how’d we do? Our elementary evaluation accurately anticipated AUD weak spot on disappointing CPI knowledge, which materialized in weaker-than-expected numbers. Our technical evaluation precisely recognized the rising trendline break as a possible set off for shorts, which really performed out properly earlier than the Australian CPI occasion.
We predict this dialogue was “extremely doubtless” supportive of a web optimistic end result as each elementary and technical triggers aligned properly. The transfer after the information was a powerful momentum transfer to the draw back, which meant that energetic danger administration was doubtless not wanted. And with a publish occasion transfer of 100 pips (proper round its each day ATR), there was loads of revenue to seize for brief sellers. Total, an awesome potential setup as every thing lined up properly and market developments was favorable for our bias.
USD/JPY: Wednesday – January 29, 2025
USD/JPY 1-Hour Foreign exchange Chart by TradingView
On Wednesday, our strategists had their sights set on the FOMC Assertion and its potential affect on the U.S. greenback. Based mostly on our Occasion Information, expectations have been for the Fed to maintain charges regular at 4.25%-4.50%, with markets searching for indicators on future coverage path and any modifications to the committee’s financial outlook. With these expectations in thoughts, right here’s what we have been pondering:
The “Greenback Dominance” Situation:
If the Fed maintained a much less dovish stance or pushed again in opposition to aggressive price reduce expectations, we anticipated this might increase USD. We targeted on USD/JPY for potential lengthy methods if danger sentiment was optimistic, and the broad rate of interest divergence, even with the rising rate of interest setting in Japan. In a risk-off setting, USD/CAD lengthy made sense given the BOC’s latest dovish shift, potential tariff influences, and the latest dovish price reduce from the BOC.
The “Greenback Decline” Situation:
If the Fed signaled openness to earlier price cuts or expressed elevated development issues, we thought this might weigh on USD. We thought-about EUR/USD for potential lengthy methods if danger sentiment stayed optimistic, notably given the ECB’s much less dovish stance on gradual coverage easing. If danger sentiment leaned damaging, USD/CHF quick regarded promising given the pair’s downtrend and place close to key resistance ranges and the franc’s standing as a secure haven foreign money.
What Truly Occurred:
The Fed saved Fed Funds vary regular at 4.25%-4.50% as anticipated, however made a number of notable changes to their outlook:
- Dropped earlier language about inflation having “made progress”
Modified labor market evaluation to notice circumstances “stay stable” versus earlier “eased” - Maintained dedication to knowledge dependency for future coverage choices
Choice was unanimous amongst voting members - Most significantly, Fed Chair Powell struck a notably much less dovish tone within the press convention, emphasizing they’re “not in a rush” to chop charges and must see extra proof that inflation is transferring sustainably towards their 2% goal.
Market Response:
This end result essentially triggered our USD bullish situations, and with danger sentiment enhancing from earlier bearishness sparked by Chinese language AI developments and tariff issues, we thought USD/JPY was arguably the most effective pair to look at.
Trying on the USD/JPY chart, we noticed an preliminary pop after the FOMC occasion, however the pair continued its robust downtrend, failing to interrupt above the falling ‘highs’ sample, the primary technical situation to look at.
It’s doubtless that with the FOMC probably not being a significant market mover, USD/JPY merchants turned their focus to hawkish feedback from BOJ Deputy Governor Himino about potential additional price hikes. The pair continued decrease to finally take a look at the S2 Pivot space, the place consumers took again management, like each revenue taking and a response to BOJ Governor Ueda’s feedback that financial coverage remains to be very accommodative and can doubtless stay so to assist Japanese financial exercise.
The Verdict:
So, how’d we do? Our elementary evaluation anticipated USD power on a hawkish Fed stance, however the occasion didn’t appear to be bullish sufficient to maintain USD bullishness for lengthy, not less than in opposition to information headlines surrounding members of the Financial institution of Japan.
This did not result in a sustained upside break of the falling ‘highs’ sample, the habits that we have been anticipating to make a top quality lengthy commerce setup.
With out the anticipated value response mentioned in our unique watch publish, we predict this dialogue didn’t assist a web optimistic end result as no high quality commerce alternative developed.
This end result is a superb reminder that having a number of recreation plans is essential, in addition to staying nimble when the market doesn’t comply with our playbook!
