Top Forex Market Movers of the Week (Mar. 28 – Apr. 1, 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. 28 - Apr. 1, 2016)

Top Forex Weekly Movers (Mar. 28 – Apr. 1, 2016)

Looks like Greenback and pound weakness, as well as Kiwi strength were the main themes for this forex trading week. Okay, time to see what was driving this week’s forex price action!

Fed Head Yellen’s Speech

On Tuesday (March 29) Fed Chairperson Janet Yellen delivered a speech titled The Outlook, Uncertainty, and Monetary Policy. And forex traders responded to that speech by dumping the Greenback across the board for pretty much the rest of the week. What gives?

USD/JPY: 1-Hour Forex Chart

USD/JPY: 1-Hour Forex Chart

Well, if you’re interested on the details of Yellen’s speech, you can go ahead and read Forex Gump’s write-up on the key points of the speech here. Or, if you’re feeling really punctual (or have nothing else better to do), you can go ahead and read Yellen’s full speech here.

The gist of it all, though, is that the Fed’s Head Honcho was still pretty dovish, reiterating what was communicated in the Fed’s latest FOMC statement. This is in stark contrast to her fellow Fed officials who have been saying some very hawkish stuff, with one Fed official saying that a rate hike may come “possibly as early as the meeting scheduled for end of April.” Yellen’s dovish tone was (quite naturally) very disappointing for forex traders, especially the interest rate junkies.

Yellen was still relatively upbeat on the U.S. economy, though, blaming her dovishness on ongoing risks to the U.S. economy from global developments, particularly in China. This is likely the reason why other market players responded to her dovish tone with a “lower interest rates for longer, let’s buy risky assets with cheap money, yippee-ki-yay” kind of mindset rather than “oh gawd, Yellen is still dovish, which may mean that the U.S. economy could be in trouble, so let’s sell everything, including the dog” kind of mindset.

Incidentally, the intense risk appetite brought about by Yellen’s dovish speech apparently benefited the higher-yielding Kiwi the most, with Kiwi pairs surging higher for two straight days before trading roughly sideways when risk sentiment became a bit more mixed on Thursday and Friday.

NZD/USD: 1-Hour Forex Chart

NZD/USD: 1-Hour Forex Chart

As to why forex traders decided to load up on the Kiwi in particular, that’s a bit of a mystery since there weren’t any clear catalysts that could have fueled Kiwi demand. It’s possible that monetary policy expectations were in play, though.

If y’all can still recall, the RBNZ slashed the official cash rate by 25 bps to 2.25% back in March 9, as a preemptive move against the threat of more deflationary pressures, as well as to “support continued expansion in the New Zealand economy.” However, New Zealand’s Q4 2015 GDP grew by 0.9% quarter-on-quarter, which is faster than the expected 0.7% growth and the same pace of expansion as back in Q3. New Zealand also finally had a trade surplus in January ($13M vs. -$250M expected, -$38M previous) after seven consecutive months of deficits. And February then reported a bigger-than-expected trade surplus ($339M vs. $75M expected, $13M previous), with exports growing by 9%, so New Zealand’s export-oriented economy seems to be in good shape, at least for Q1 2016.

These and other positive economic reports and events, namely the booming tourism industry and growth in other agricultural industries, probably fueled expectations that the RBNZ won’t be cutting rates again in the coming April 27 rate decision (and may even sound upbeat about the economy), making the higher-yielding Kiwi more attractive until the rate decision rolls around or unless RBNZ officials begin jawboning the Kiwi again. Of course, it’s also possible that the Kiwi just looks more attractive from a technical perspective.

Net Negative Reports for the U.K.

  • BOE FPC statement: the outlook for financial stability in the U.K. has deteriorated
  • BOE FPC statement: risks stemming from the global environment have increased
  • BOE FPC statement: Brexit a major domestic risk
  • U.K. final Q4 GDP q/q: revised higher to 0.6% vs. unchanged at 0.5% expected
  • U.K. final Q4 GDP y/y: revised higher to 2.1% vs. unchanged at 1.9% expected
  • U.K. current account: -£32.7B vs. -£21.2B expected, -£20.1B previous
  • U.K. manufacturing PMI: 51.0 vs. 51.2 expected, 50.8 previous
GBP/USD: 1-Hour Forex Chart

GBP/USD: 1-Hour Forex Chart

The pound was getting some buyers on Monday and Tuesday, shrugging off the BOE’s downbeat Financial Policy Committee (FPC) statement, which warned that “the outlook for financial stability in the United Kingdom has deteriorated since it last met in November 2015” and that “risks stemming from the global environment have increased.” The FPC also warned that a potential Brexit is a major domestic risk that will scare away investors and weigh down on the pound, but again, forex traders didn’t seem to mind.

The pound then held its ground against its forex rivals for most of Wednesday, but was beginning to show signs of weakness (except against the weak Greenback), as forex traders awaited the final estimate for Q4 2015 U.K. GDP.

As luck would have it, Q4 2015 U.K. GDP was revised higher to +0.6% quarter-on-quarter from +0.5%. This is obviously a bit faster than the Q3’s 0.4% expansion. However, pound bulls couldn’t really celebrate because the U.K. printed a current account deficit of £32.7B for Q4, which is much bigger than the £21.2B deficit that was expected. In fact, the Q4 deficit was equal to around 7% of gross GDP at current market prices, which is “the largest proportion since quarterly records began in 1955,” according to the report from the Office for National Statistics. Wowsers! Still, the better-than-expected revised GDP reading was probably reason enough for the pound bulls to keep on fighting.

The bearish floodgates were finally opened and pound bulls were finally forced to say “Ouch! Ouch! I surrender!” come Friday when the Markit/CIPS U.K. manufacturing PMI reading missed expectations by coming in at  51.0 (51.2 expected). It was still a slight improvement over the previous 50.8 reading, but as I noted in this Friday’s London Session Forex Recap, commentary from the report was rather downbeat, even outright gloomy.

Specifically, the pace of manufacturing production was essentially unchanged from that of February’s seven-month low while employment also contracted for the third consecutive month. Price pressures also “remained on the downside,” which is bad news for CPI and may convince the BOE to refrain from hiking rates all the more. Finally, “export business decreased for the third straight month in March,” but at least domestic demand remained robust.

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