Top Forex Market Movers of the Week (Jan. 18-22, 2016)

The forex trading week has come and gone. Time to take a look at the currencies and/or currency pairs that were on the move and what moved them. Were you able to profit from any of this week’s top movers?

Top Forex Weekly Movers (Jan. 18-22, 2016)

Top Forex Weekly Movers (Jan. 18-22, 2016)

What a turnaround! Loonie weakness was the name of the game during the previous forex trading week, but this forex trading week was all about the Loonie’s total domination. The Aussie was in demand as well while the safe-havens were in retreat, together with the low-yielding euro. Time to take a look at what was driving forex price action this week!

Oil Recovers

  • U.S. crude oil up (CLG6) by 9.62% to $32.25 per barrel for the week
  • Brent crude oil up (LCOH6) by 11.20% to $32.18 per barrel for the week

Oil was a roller coaster ride during the trading week. Both U.S. crude and Brent crude started the first three days of the week on a weak footing due to the lifting of sanction on Iran and intense oversupply woes sparked by the International Energy Agency’s (IEA) warning on Wednesday that the oil market could “drown in oversupply” in 2016.

Oil finally found support on Thursday, thanks to improving sentiment over the ECB’s decision to maintain rates and hints at further easing down the road. The big up move came on Friday, and most market analysts pointed to a the cold front sweeping over the U.S. and Europe and speculation that it would cause demand for oil to pick up.

Market players covering on their oil shorts was very likely a factor as well. Interestingly enough, the Commitments of Traders positioning report from the CFTC for the week ending on Jan. 19 shows that many large speculators significantly trimmed their short positions on U.S. crude to 303,402 contracts after heavily pumping-up their shorts to 336,291 contracts during the previous week. Looks like the smart money knew something we didn’t. Well, that or their short-covering triggered stops, sending oil higher.

U.S. Crude Oil Positioning

U.S. Crude Oil Positioning

Anyhow, U.S. crude oil dove 10.98% lower to $26.19 per barrel during the first three days of the week before skyrocketing by 23.14% to end the week 9.62% higher at $32.25 per barrel. Meanwhile, Brent crude oil slumped by 6.32% to $27.11 per barrel before shooting up by 18.70%, closing 11.20% higher at $32.19 for the week.

The Loonie’s own price action heavily tracked that of oil’s, so the Loonie understandably performed very well as well. Although there was a brief divergence during Wednesday’s U.S. forex session, which was likely due to the BOC’s decision to keep rates on hold when many economists were forecasting a rate hike.

USD/CAD 1-Hour Forex Chart

USD/CAD 1-Hour Forex Chart

Oh, for the newbie forex traders out there who are wondering what oil has to do with Canada and the Loonie, make sure to check out our School’s lesson on How Oil Affects USD/CAD. The short of it, though, is that crude oil accounts for almost 20% of Canada’s exports, so Canada’s economy and Looie are heavily tied to oil prices.

ECB Rate Decision and Presser

  • ECB maintains refinancing rate at 0.05% as expected
  • ECB maintains marginal lending rate at 0.30% as expected
  • ECB maintains deposit rate at -0.30% as expected
  • rates will “remain at present or lower levels for an extended period of time”

The ECB rate decision was pretty much a non-event since the ECB decided to maintain the current monetary policy, which is what most market players have been expecting. The press conference that followed was more market-moving, however, since ECB officials presented an even more dovish tone, expecting that rates will “remain at present or lower levels for an extended period of time” given that “downside risks have increased again amid heightened uncertainty about emerging market economies’ growth prospects, volatility in financial and commodity markets, and geopolitical risks.”

Given the above developments, the ECB officials also deemed that it is “necessary to review and possibly reconsider [their] monetary policy stance at [their] next meeting in early March” and that “work will be carried out to ensure that all the technical conditions are in place to make the full range of policy options available for implementation, if needed.”

The hints of further easing down the road (if needed) caused the euro to weaken pretty much across the board as a knee-jerk reaction. The possibility of even lower borrowing costs also triggered a rally in the European and U.S. equities market. The sudden return of risk appetite then proceeded to pull the rug from under the safe-haven currencies (USD, JPY, CHF) while pumping up demand for the higher-yielding currencies, namely the Aussie and the Loonie.

The BOC Rate Decision

  • Overnight rate unchanged at 0.50% vs. 25 bps rate cut consensus
  • BOC: Risks to inflation profile are balanced
  • BOC Gov. Poloz: Waiting for impact of fiscal stimulus

As noted above, the Loonie’s price action diverged from that of oil’s during Wednesday’s U.S.forex session, and this was likely due to the BOC’s decision to maintain the overnight rate.

Forex Gump already has a write-up for that event, so go ahead and read it here, if you want. The gist of it all is that BOC officials sounded rather upbeat and confident that the Canadian economy is gonna recover and that “A reorientation of the Canadian economy toward the non-resource sector is being facilitated by the ongoing U.S. recovery, the lower Canadian dollar, and accommodative monetary and financial conditions.”

They did, however, concede that the recovery will be delayed. They even noted in their Monetary Policy Report that “Total CPI inflation is expected to remain well below 2 per cent through 2016” and they also downgraded their GDP estimate for this year from 2.0% to 1.4%.

Still, the BOC’s upbeat sentiment and the fact that it refrained from cutting rates was more than enough to cause the Loonie to start strengthening a day ahead of the intraweek oil recovery and may also help to prop up the Loonie from further falls.

Bonus: BOE Carney’s Speech

Pound pairs had a mixed performance during the trading week, but pound pairs had a very noticeable drop across the board during Tuesday’s (January 19) morning London forex session.

GBP/USD 1-Hour Forex Chart

GBP/USD 1-Hour Forex Chart

As I noted in the session recap for that day, the most likely catalyst for the sudden drop was BOE head honcho Mark Carney’s speech that he delivered during the Peston lecture in London.

Carney talked about a lot of things before switching to a more serious tone when he began to talking about the “softness in nominal GDP growth” and the other problems the U.K. is currently facing. He then proceeded to explain the differences between the challenges being faced by the BOE and the U.S. Fed before delivering his coup de grâce to pound bulls (especially the interest rate junkies) by saying these head-turning phrases:

  • “now is not yet the time to raise interest rates”
  • “not enough cumulative progress has been made to warrant tightening policy”

So there you have it! A rate hike is no longer in the cards for now. And that’s straight from Carney’s mouth. The high-yielding pound did get some buyers due to the returning risk-on sentiment, but perhaps Carney’s words will continue to weigh-in on the pounds forex price action in the days to come.

Do you think these catalysts were enough to spark longer-term forex trends or did they just cause a knee-jerk reaction? Better keep these market themes in mind when planning your trades for next week!

Do you think these catalysts were enough to spark longer-term forex trends? Better keep these market themes in mind when planning your trades for next week!