Play of the Day Recaps: Jan. 30 – Feb. 1, 2024

It was an incredibly challenging week for traders with so many top, top tier events on the calendar.

Our strategists targeted mostly U.S. events for very short-term opportunities, which with solid risk management execution would have arguably had a high probability of leading to positive outcomes.

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On Tuesday, our focus turned to EUR/USD ahead of a busy week for Euro area fundamental updates and as the markets awaited the U.S. Treasury Quarterly Funding Announcement (which may influence USD behavior through the perception of demand for U.S. bonds).

We thought that if Euro area GDP data or business survey data came in stable to positive, it would likely draw in short-term euro buyers. And if the U.S. Treasury Quarterly Funding Announcement drew in short-term Dollar bears, a short-term bounce may be in the cards for EUR/USD.

Ultimately, we thought that if this scenario played out, it could potentially draw in net sellers playing the longer-term themes and current price trend lower in the pair.

Wednesday’s U.S. data and U.S. Treasury Quarterly Funding Announcement did spark volatility and a bounce in EUR/USD, arguably on the weak ADP U.S. Private Payrolls read, the fall in the quarterly employment cost index data, and the boost in size of quarterly issuance of longer-term debt.

This lead to a bounce in EUR/USD, which we expected, lead to a new opportunity for sellers to short the pair, especially after the FOMC statement that arguably pushed back hard on a March rate cut.

This led to a swift move lower to the 1.0800 handle in EUR/USD, where it stabilized before reversing back to the upside in the following London trading session. This strong bounce was likely due to the fresh Euro area data, including PMIs that came in better than expected (signaling further stabilization in a contractionary environment) and the flash CPI read that came in above expectations (but ticked lower than previous).

All combined this likely had traders lowering the odds of an early rate cut from the European Central Bank. The Thursday rally continued on, likely with the help of weak U.S. data, including a big jump in weekly U.S. initial jobless claims data.

And finally, EUR/USD traders had one more event to work through, the highly anticipated U.S. employment report from the U.S. government. The net change in jobs and the average hourly earnings number came in well above expectations, unsurprisingly prompting traders to take the March rate cut further off of the table.

EUR/USD dropped like a rock on the news to break below the 1.0800 handle once again, where it stayed for the rest of the trading session.

Needless to say, this was an incredibly busy week for EUR/USD, and the outcome of trading this pair would have highly depended on risk and trade management through each major event.

But we’d argue that this discussion was effective in helping reach a positive outcome given our stance that any bounce could draw in sellers into the current price downtrend and that our downside support targets were met twice after two intraweek rallies.

On Wednesday, AUD/USD was at the top of the watchlist after Australia’s Q4 2023 CPI came in much lower than the markets had expected, and China’s January manufacturing PMI update showed further contraction in the world’s second largest economy, drawing in net Aussie selling during the session.

On the other side of the trade, we looked at the U.S. dollar with the latest FOMC right around the corner as a potential catalyst for volatility and opportunity, as well as the upcoming breakdown of Monday’s Quarterly Funding Announcement from the U.S. Treasury.

The main focus of the discussion was the FOMC statement, and whether or not Chair Powell will speak against a March rate cut. Markets had high hopes he wouldn’t and with the CME Fed Watch Tool Pricing in 52% odds of a March cut, the pricing strategy discussed was based on the most likely scenario at the time of Powell not pushing back on rate cuts.

Well, the FOMC did end their tightening bias as expected, but surprised everyone by basically saying “no chance” to an interest rate cut in March. This sparked the big bullish move in the Greenback across the board, and answered the question of whether or not the tight range in AUD/USD would hold.

The range easily broke and the support area became resistance momentarily before the sellers pushed AUD/USD to the S2 Pivot support area before running out of steam.

The effectiveness of this discussion is mixed for us. We mainly focused on the AUD/USD bullish scenario where Powell didn’t push back rate cuts and didn’t have a bearish strategy for if he did push back.

But the main setup in discussion was a potential range break on AUD/USD, which it did do due to the fundamental catalysts in focus.

We also advised against holding positions for long due to the busy event calendar, so overall, a trader who saw the range break on the FOMC statement, shorted and took profit at the end of the session (avoiding the big bounce on Thursday) would have likely seen a positive outcome.

But given that wasn’t our base scenario discussed, we’d rate our original discussion as neutral in its effectiveness towards a positive outcome as it would have likely led to no trade with Powell’s pushback invalidating the strategy.

On Thursday, we took a look at XAU/USD after the Fed basically signaled a likely end to rate hikes its January statement, an outcome that would likely have Dollar bears staying into control in the short-term.

That outcome aligns with the current trend higher with XAU/USD, but we did have a few more potential catalysts to get past until the coast was clear for the bulls to maintain dominance in this pair

We noted that the Bank of England’s monetary policy statement, and U.S. data (U.S. weekly jobless claims and PMI numbers) as potential broad market movers, and we discussed both bullish and bearish scenarios from those events that may push XAU/USD one way or another.

Not too long after our discussion, the Greenback made one more push higher against gold, likely on the continue pricing in of Chair Powell’s push back against March interest rate cuts. XAU/USD stabilized ahead of the Thursday round of U.S. data, which signal jobs sector weakness, including a jump in weekly jobless claims and a fall in ISM PMI’s employment Index from 47.5 to 47.1.

Our bearish USD scenario played out and as expected, this outcome brought in XAU/USD buyers quickly.  This took the pair to a new intraweek high at around $2,065 before stabilizing around $2,055,  likely on taking profit/repositioning ahead of Friday’s U.S. Non-Farm Payrolls data.

Overall, we believe that this discussion was effective towards supporting a positive outcome in that our bear USD scenario got the price reaction discussed & profit target areas were hit.

Also, our idea that “short-term traders will have greater odds of keeping profits and lower odds of getting caught in wild price swings” worked out this time as gold bulls would have avoided giving back those gains from the U.S. jobs report.

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