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?
I guess it’s pretty obvious that this trading week’s main theme was the pound’s severe weakness against all its forex rivals. And it’s not as obvious, but if we look at the honorable mentions, we can also see that euro weakness and Loonie strength were major themes. Let’s dive right in and see what was driving forex price action this week, shall we?
Brexit actually became an issue last week, as I noted in my previous Top Forex Market Movers of the Week, so readers who have been following my weekly recaps as well as those who were able to read up on Forex Gump’s Update on the Brexit Saga were probably sniffing around for Brexit-related news before the trading week even started.
Anyhow, the main catalyst for the pound’s downhill charge was arguably London Mayor Boris Johnson’s unexpected switch to the pro-Brexit team. Johnson, a Conservative Party heavyweight, announced his position on the Brexit issue last Sunday and later wrote a lengthy piece for The Telegraph explaining his position.
Johnson’s switch highlighted division within the Conservative Party leadership under British Prime Minister David Cameron. In addition, Johnson apparently has a significant pull on how Britons will vote during the referendum, as can be seen below.
Johnson’s announcement of his position late on Sunday was very likely the reason why pound pairs gapped lower across the board when the new trading week commenced before slumping lower during the course of the day. After that, pound pairs broadly kept going lower on Tuesday and Wednesday as British MPs traded blows with each other and headlines like “Brexit could wipe 20% off the pound amid referendum turmoil, warns HSBC” kept popping up.
Most pound finally found support around Thursday when things simmered down and it became clear that most British MPs were against a Brexit and ready to campaign against it.
At this point, I have to point out that the euro was the second weakest currency during the forex trading week, winning out only against the pound, as can be seen on that there list below.
Risk appetite was the dominant sentiment during the trading week, so it’s natural to expect that the lower-yielding euro will be performing badly. However, I think the euro was likewise being affected by Brexit jitters given the close correlation between most pound and euro pairs during the week, likely because 6.6% of E.U. exports go to the U.K. while 51.4% of British exports go to the E.U., and this trade relation may be messed up if a Brexit does occur.
Oil Climbs Higher
- U.S. crude oil up (CLG6) by 10.86% to $32.86 per barrel for the week
- Brent crude oil up (LCOH6) by 6.51% to $35.16 per barrel for the week
There weren’t really any major economic reports for Canada during the forex trading week, but oil benchmarks closed higher for the week, so Loonie pairs also ended the week higher. If you don’t understand why, make sure to check out our School’s lesson on How Oil affects USD/CAD.
Getting back on topic, oil benchmarks were pushed higher on Monday due to speculation that falling U.S. shale output and higher demand for gasoline will finally cause oil prices to bottom out. However, oil slid down again on Tuesday and most of Wednesday when Iranian Oil Minister Bijan Namdar Zanganeh referred to the Russian-Saudi deal to freeze oil output at January level as both “laughable” and “ridiculous” and Saudi Oil Minister Ali Al-Naimi’s commented that cutbacks on oil production “is not going to happen.”
However, hopes that a deal can still be brokered continued to linger, causing oil prices to come around and recover by Thursday, especially after Russian Energy Minister Alexander Novak said that Russia doesn’t “plan to increase production in 2016, which means forecasted output in 2016 will equal 2015 level.” Oil benchmarks then closed very slightly lower on Friday due to profit-taking, according to some analysts.
Bonus: U.S. Preliminary Q4 2015 GDP
- Revised higher from 0.7% to 1.0% vs. 0.4% expected
The Greenback had a mixed performance during the forex trading week, but there was a noticeable push higher across the board on Friday after the Bureau of Economic Analysis (BEA) released the second estimate for Q4 2015 U.S. GDP, which showed an upside surprise rather than the expected downgrade.
Looking at the details of the report, the upgrade was mainly due to smaller negative contributions from the contraction in private investment (-0.12% vs. -0.41% previous) and the trade deficit (-0.25% vs. -0.47% previous). The primary reason why the private investment component was less of a drag was that change in private inventories was revised to subtract only 0.14% from GDP growth (-0.45% previous). As for the smaller trade deficit, that was due mainly to imports being revised to show a contraction (-0.6% vs. 1.1% previous).
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!