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Premium FX Watch Recap: June 10-12, 2024

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Our forex strategists have targeted this week’s UK employment data and FOMC statement as potential short-term opportunities to watch.

Of the four scenario/price outlook discussions this week, The two have sparked debates on both fundamentalism and technology. It would be a potential candidate for a risk management overlay. See our review of that discussion to see what happened.

Watchlists are price outlooks and strategy discussions supported by both fundamental and technical analysis. High Quality Discretionary Trading Ideas Before you commit to a risk and trade management plan.

Watch list” will be picked up as they are published throughout the week. To subscribe Babypips Premium.

GBP/JPY 1 hour exchange rate Chart by TradingView

The Pound was the asset of choice for the week on Monday as the market was due to receive the latest employment data from the UK. Our event guide for the UK employment report was somewhat mixed, with the market expecting a slight increase in jobless claims in May and steady wage growth, although a business survey indicated a net gain was expected.

If the employment data comes out positive (likely reducing the chances of a rate cut by the Bank of England) we thought GBP/CAD would be a good choice for a longer term setup for the pound given the Bank of Canada’s recent more dovish stance.

However, we have our eye on GBP/JPY as a possible weakness for the pound if the UK employment data is overall weaker than expected, as this could signal that the Bank of Japan is moving further away from its ultra-loose monetary policy (i.e. further rate hikes and possible quantitative tightening).

UK data released on Tuesday showed a higher than expected rise in unemployment to 54,000 in May (12,000 expected, 89,000 previously), and the unemployment rate rose to 4.4% from 4.3%, which was supported. Both of these figures support the outlook for a net negative result, but wage growth remained high at 5.9%, which could mean prices will remain high in the future, reducing support for the Bank of England’s interest rate cuts.

Overall, however, this was a net negative report, triggering our bearish view on the Pound, which was arguably supported by the decline in GBP/JPY following the event announcement, and in our original discussion we noted that “the pair could head towards its all-time high of 200.75 near today’s R1 (200.89) pivot point line before bearish demand continues.”

In the chart above, Guppy saw buying pressure increase throughout the week following the UK employment data release, due to the weakening of the yen ahead of the Bank of Japan’s monetary policy announcement.

GBP/JPY surged to near 201.55 after hitting record highs following the release of the BoJ statement with no signs of tapering bond purchases, but eventually reversed course after BoJ Governor Ueda hinted at a possible interest rate hike and possible quantitative tightening at the BoJ press conference.

Overall, in this discussion, risk and trade management execution was undoubtedly a big factor in this outcome, as well as a little patience to execute at the right price, but ultimately, the market moved in favor of fundamental developments this week.

Also, given that GBP/JPY closed below our discussion price, target catalyst price area, and target resistance watch area (and the market never traded more than 1 ATR above our target resistance area), an argument can be made that this discussion was “probably” in favor of a purely positive outcome.

USD/CAD 1 Hourly Forex Chart by TradingView

USD/CAD 1 hour exchange rate Chart by TradingView

On Wednesday, the much-awaited monetary policy statement from the FOMC was the target of the week’s key event, expected to create big moves for all markets and potential opportunities especially for the US Dollar.

Our event guide for the potentially monster event suggested the most likely outcome is for the Fed to continue to support a tight interest rate environment in the US, with the Fed’s latest economic forecasts and ‘dot plot’ for 2024 to watch.

If the Fed lowers its economic growth and inflation forecasts to support the view that multiple rate cuts will come in 2024, it will create a potential dollar selling opportunity for USD/CHF, as the pair has given strong downside momentum to sellers recently.

Conversely, if we anticipate a scenario in which Fed comments and outlook make future rate cuts less likely, then USD/CAD should be on our watch list as it could provide an opportunity for USD appreciation given the BOC’s recent more dovish stance as mentioned above.

On Wednesday, the Fed left its target range for the federal funds rate unchanged at 5.25% to 5.50%, as widely expected, and maintained its median growth forecast, but revised upward its inflation forecasts for this year and next. What’s even more interesting is that 11 of the 19 policymakers expected no more than one rate cut in 2024, while four officials actually expected no easing at all. This has undoubtedly made the event a net bullish factor for the US Dollar and triggered our USD/CAD long bias.

In our initial discussion, we noted that USD/CAD could settle in the 1.3710 to 1.3725 area as traders offload their bets ahead of the expected US CPI and FOMC reports.

So, for those who executed a long bias on USD/CAD after the Fed event was confirmed to be net hawkish, the argument is *very likely* in favor of a net positive outcome as the pair rose above the FOMC statement price area by more than the 1-day ATR and maintained gains relative to that area until Friday’s close.

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