Top Forex Market Movers of the Week (Mar. 14-18, 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 (Mar. 14-18, 2016)

Top Forex Weekly Movers (Mar. 14-18, 2016)

Hmm. It’s not very obvious at first glance, but the main themes for this forex trading week were yen strength and Greenback weakness. And it also looks like we had Loonie demand as a secondary theme. So, what was driving this week’s forex price action?

The BOJ’s Monetary Policy Decision

  • Monetary policy maintained
  • 7-2 majority vote to keep the benchmark rate at -0.1% (5-4 vote to cut rates from 0.0% to -0.1% previously)
  • 8-1 majority vote to keep its monetary base target of around 80 trillion JPY a year
  • 8-1 majority vote to purchase Japanese government bonds (JGBs) at a pace of 80 trillion JPY a year
  • BOJ expects some “sluggishness” in exports and production in the near-term

As I mentioned in last week’s Top Forex Market Movers, unnamed BOJ sources interviewed by Reuters were saying that further easing was not in the BOJ’s agenda, which is contrary to what most forex traders and market analysts were saying. Those unnamed sources turned out to be reliable, however, since the BOJ decided to maintain its current monetary policy.

Furthermore, if we compare the most BOJ statement and the previous BOJ statement, the phrase that the BOJ “will cut the interest rate further into negative territory if judged as necessary” was conspicuously removed in the more recent statement. Moreover, the BOJ added that “sluggishness is expected to remain in exports and production for the time being,” but “domestic demand is likely to follow an uptrend,” which is a vague way of saying that the economy will slow down in the near-term, but will likely improve in the longer-term.

The move (well, lack thereof to be more accurate) and downbeat near-term outlook disappointed market players who responded by dumping Japanese equities all week long, which strengthened the yen, starting a vicious cycle that made Japanese equities even less attractive while strengthening the yen all the more.

USD/JPY 1-hour Forex Chart

USD/JPY 1-hour Forex Chart

The yen’s gains against most of its forex rivals were finally capped on Wednesday when BOJ Governor Haruhiko Kuroda performed a U-turn during his statement before the Japanese parliament, saying that “Of course, there’s a possibility that we will decide to cut interest rates further” and that “Theoretically, there is room to do so.” The yen continued advancing against the Greenback, however, and that was because of…

The FOMC Statement

  • 9-1 majority vote to maintain the policy rate at 0.50% vs. unanimous vote to maintain the policy rate previous
  • The sole dissenter was Esther L. George, and she wanted a rate hike
  • U.S. inflation and GDP growth forecasts downgraded
  • Median path for policy rate was downgraded from 1.4% to 0.9%, which implies only two rate hikes at most for this year instead of four.

Forex Gump already has a more in-depth writeup on the most recent FOMC statement, so go ahead and read that if you want a more detailed look (read it here). The gist of it all is that the FOMC members decided to maintain the Federal funds rate at 0.50%, which is not that big of a story since forex traders were already expecting that.

What really caught the attention (and crushed the rate hike dreams) of forex traders was the Fed’s rather downbeat outlook, which FOMC members apparently blamed on the external risks from the slowdown in the global economy.

This downbeat outlook, in turn, convinced FOMC officials to cut back their forecasts on the policy rate path from 1.4% to 0.9%, which suggests that there’s now breathing space for only one or two rate hikes within the year instead of the three or four rate hikes projected during the December meeting. Now that’s a real bummer, if you’re bullish on the Greenback, which is why the Greenback lost out across the board.

USD Index 1-hour Forex Chart

USD Index 1-hour Forex Chart

Incidentally, the Greenback’s weakness also made commodities relatively cheap, which triggered some bargain buying. U.S. crude oil, for example, ended the week 4.41% higher to $40.20 per barrel, which is good news for the Loonie. Although reports that OPEC and non-OPEC oil producers have finally set a meeting for an oil freeze deal on April 17 over at Doha also improved market sentiment on oil.

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!