Top Forex Market Movers of the Week (Feb. 8-12, 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 (Feb. 8-12, 2016)

Top Forex Weekly Movers (Feb. 8-12, 2016)

I guess it’s pretty obvious that the Japanese yen was totally dominating the forex battlefield, although the Swiss franc was in demand as well. Okay, time to see what was driving forex price action this week!

Another Down Week for Global Equities

  • Japan’s Nikkei 225 (N225) is down by 11.1% for the week
  • Hong Kong’s Hang Seng (HSI) is down by 5.02% for the week
  • FTSEurofirst 300 (FTEU3) is down by 3.97% for the week
  • DAX (GDAXI) is down by 3.43% for the week  
  • DOW (DJI) is down by 1.43% for the week
  • S&P 500 (SPX) is down by 0.81% for the week

Global equities act as good barometers for gauging overall risk sentiment, and most global equity indices continued the previous week’s theme by logging their second consecutive week of losses. Asian equities, particularly the Nikkei and Hang Seng, were particularly weak, with the Nikkei suffering the worst weekly slump since 2008 and the Hang Seng down to three-and-a-half-year lows.

Interestingly enough, European equities actually started the intraweek slump during Monday’s morning London forex session due to a selloff in banking stocks over concerns that the persistent low-interest rate environment and slowing global economies would hurt banks in the long run. This theme of worrying over the banking sector then spilled over into Asian equities, with Japanese equities getting hit the hardest because of the BOJ’s recent policy decision to cut the deposit rate from 0.0% to -0.1%.

Global equities were also tracking oil to a certain extent. And oil got torpedoed again this week after the IEA released a report which stressed that “Persistent speculation about a deal between OPEC and leading non-OPEC producers to cut output appears to be just that: speculation.” In addition, the IEA report stated that the likelihood of an OPEC deal to jointly cut back on oil production is “very low” and that “Supply and demand data for the second half of the year suggests more stock building, this time by 0.3 million bpd. If these numbers prove to be accurate, and with the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term. In these conditions the short-term risk to the downside has increased.”

Moving on, U.S. and European equities were able to recover a bit on Friday after European banks, particularly Commerzbank, reported positive earnings reports. Oil was also rallying hard on Friday due to renewed speculation on a potential deal to curb oil production. As such, both European and U.S. commodity-related stocks were rallying hard as well. In addition, better-than-expected U.S. retail sales readings also further pumped up risk-taking activities during the U.S. session.

Overall, it was still a down week for equities, which is why forex traders were flocking en masse to the safe-haven yen, as well as the Swissy.

Bonus: Fed Head Yellen’s Feb 10. Testimony

  • “Financial conditions in the United States have recently become less supportive of growth”
  • “higher borrowing rates for riskier borrowers, and a further appreciation of the dollar” could weigh down economic outlook
  • “I do not expect that the FOMC is going to be soon in a situation where it’s necessary to cut rates”
  • “I want to make clear that monetary policy is not on a preset course”
  • U.S. Fed “should look at” negative interest rates as a possible tool, but no reason to use it just yet
USD Index 1-Hour Forex Chart

USD Index 1-Hour Forex Chart

If you take a look at that there chart above, you’ll notice that the Greenback was being dumped across the board on Tuesday before its forex price action began to diverge after U.S. Fed Chairperson Janet Yellen’s Feb. 10 testimony to the House Financial Services Committee.

There were no major catalysts for the Greenback’s weakness on Tuesday, but some market analysts attributed the broad weakness mainly to safe haven flows to the yen and the Swissy, as well as the lower-yielding euro. However, I don’t really buy that explanation since the Greenback was also losing out to the higher-yielding pound and Loonie, as you can see on that there chart.

It’s just my humble opinion, but forex traders were likely betting that U.S. Fed Head Yellen’s testimony was gonna be ugly for the Greenback. And speaking of Yellen’s testimony and the Q&A session that followed, she said that “Financial conditions in the United States have recently become less supportive of growth” and that “higher borrowing rates for riskier borrowers, and a further appreciation of the dollar” could weigh down economic outlook. In short, she was saying that financial conditions have become tighter, which is also what Dovish Dudley said last week.

And while she said that: “I do not expect that the FOMC is going to be soon in a situation where it’s necessary to cut rates,” she also demurred on a potential rate hike this coming March by saying that: “I want to make clear that monetary policy is not on a preset course.” Even worse for interest rate junkies was the fact that she toyed with the idea of using negative rates, saying that the U.S. Fed “should look at” negative interest rates as a possible tool, but she added that there’s no reason to use it just yet.

Overall, not a happy day to be bullish on the Greenback.

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!