Top Forex Market Movers of the Week (Jan. 25-29, 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. 25-29, 2016)

Top Forex Weekly Movers (Jan. 25-29, 2016)

Top Forex Honorable Mentions (Jan. 25-29, 2016)

Honorable Mentions (Jan. 25-29, 2016)

Just one glance at the list and it’s pretty obvious that this trading week’s main theme was the Japanese yen’s weakness to all its forex rivals. We also have Loonie and Aussie demand as minor themes, which becomes more obvious if we also look at the the top 5 honorable mentions. Okay, time to take a look at what was driving forex price action this week!

BOJ Monetary Policy Decision

  • 5-4 majority vote to cut the benchmark rate from 0.0% to -0.1%
  • 8-1 majority vote to keep its monetary base target of around 80 trillion JPY a year.
  • 8-1 majority vote (6-3 previous) to purchase Japanese government bonds (JGBs) at a pace of 80 trillion JPY a year

Forex Gump already has a more in-depth write-up on the topic (read it here), so check that out if you want the details. The gist of it all is that the rate cut was a momentous turnaround for the BOJ since the BOJ has defiantly refused to cut rates since October 2010 when it began laying down the framework for its asset purchase program.

Forex Snapshot: Japanese Benchmark Rate

Japanese Benchmark Rate

The rate cut triggered risk-appetite in the global market, especially for equities, which is bad news for the safe-haven yen. Also, Forex Ninja has been pointing out in his Weekly CFTC COT Positioning reports that bullish bets on the Japanese yen have been building up over the past few weeks due to the prevalence of risk aversion. Given the large build-up, it is therefore highly likely that some forex traders used this event to unwind their positions on the yen, which also helps to explain the yen’s explosive reaction to the event.

USD/JPY 1-hour Forex Chart

USD/JPY 1-hour Forex Chart

Oil Rally Continues

  • U.S. crude oil up (CLG6) by 4.88% to $33.76 per barrel for the week
  • Brent crude oil up (LCOH6) by 11.59% to $35.91 per barrel for the week

As y’all learned from our School’s lesson on How Oil Affects USD/CAD, oil accounts for a large chunk of Canada’s exports (around 20%). As such, the Loonie’s forex price action heavily tracks the price action of oil.

With that out of the way, oil started the trading week on a weak footing because of reports about Iraq’s oil output being at record-high levels, with the possibility of even higher output levels within the year.

The oversupply jitters finally began to fade during Tuesday’s morning London forex session after news began to circulate that OPEC called upon member and non-member countries for a sit down to cut back on oil production. In addition, Adel Abdul Mahdi, Iraq’s oil minister, made a statement at the time that Iraq is willing to cut back on oil production if the other oil producers do so, which also helped to soothe oversupply fears.

Demand for oil continued to pick up during the course of the week, as one optimistic news after another began to pop up. Iranian President Hassan Rouhani, for example, expressed his belief that low oil prices will not last in the long term. Also, Russia was now more open to making a deal with the OPEC members after constantly refusing to do so. A meeting has not yet been agreed upon, though.

USD/CAD 1-hour Forex Chart

USD/CAD 1-hour Forex Chart

Global Equities Grind Higher

  • Japan’s Nikkei 225 (N225) is up by 3.30% for the week
  • Hong Kong’s Hang Seng (HSI) is up by 3.16% for the week
  • FTSEurofirst 300 (FTEU3) is up by 1.17% for the week
  • DAX (GDAXI) is up by 0.34% for the week  
  • DOW (DJI) is up by 2.31% for the week
  • S&P 500 (SPX) is up by 1.74% for the week

Except for the 6.13% drop in the Shanghai Composite (SSEC), all the other major global stock indices were in the green during the trading week, which is a good indicator that risk appetite was the prevailing risk sentiment during the week.

Risk-taking began to dominate global equities market on Tuesday, due to the oil price rally which I already discussed above. Climbing oil prices then pretty much kept global equities afloat until the BOJ’s monetary policy decision caused risk appetite to ramp up, with U.S. equities having the most noticeable reaction since market players were probably pricing in the higher probability of delayed U.S. rate hikes after a not so hawkish FOMC statement on Wednesday.

Anyhow, the prevalence or risk appetite during the trading week helps to explain why the higher-yielding Loonie and Aussie were in demand. And if you look at the USD/JPY 1-hour Forex Chart that I provided earlier, you’ll notice that the safe-haven Japanese yen was steadily losing ground to both the Aussie and the Loonie before the BOJ’s monetary policy decision on Friday.

Bonus: RBNZ Monetary Policy Decision

  • Benchmark rate maintained at 2.50%
  • “Monetary policy will continue to be accommodative”
  • “Some further policy easing may be required over the coming year”

The Kiwi is a higher-yielding currency too, so why didn’t it attract a lot of buyers? Well, you can blame the the RBNZ’s most recent policy statement on that. If y’all can still recall, the RBNZ cut their benchmark rate from 2.75% to 2.50% during their December rate decision. However, RBNZ Guv’nah Graeme Wheeler released a statement that RBNZ officials “expect to achieve [their inflation target] at current interest rate settings,” which heavily implies that the RBNZ is reluctant to cut rates further.

However, the most recent policy statement shows that RBNZ officials changed their mind and are now open to further easing, stating that “Monetary policy will continue to be accommodative. Some further policy easing may be required over the coming year to ensure that future average inflation settles near the middle of the target range.”

Naturally, forex traders were dismayed with the RBNZ switch in monetary policy bias and dumped the Kiwi across the board. Improving risk sentiment during the course of the week kept most Kiwi pairs afloat, though.

NZD/USD 1-hour Forex Chart

NZD/USD 1-hour Forex Chart

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!