Top Forex Market Movers of the Week (Apr. 4-8, 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 (Apr. 4-8, 2016)

Top Forex Weekly Movers (Apr. 4-8, 2016)

Just one look at that table and you can immediately conclude that this forex trading week was all about the Japanese yen’s total domination. And it’s not as obvious, but we also have Aussie weakness and Swissy strength on the side. So, what was driving this week’s forex price action?

Global Equity Indices Closed Lower

  • Shanghai Composite (SSEC) closed 0.80% lower for the week
  • Japan’s Nikkei 225 (N225) closed 2.12% lower for the week
  • Hong Kong’s Hang Seng (HSI) closed 0.63% lower for the week
  • FTSEurofirst 300 (FTEU3) closed 0.19% lower for the week
  • DAX (GDAXI) closed 1.76% lower for the week  
  • DOW (DJI) closed 1.21% lower for the week
  • S&P 500 (SPX) closed 1.21% lower for the week

Global equity indices are useful for gauging the prevailing risk sentiment in the markets, and since most of the major global equity indices finished the trading week in the red, it’s probably safe to say that risk aversion was the dominant sentiment during the trading week, which is likely why the higher-yielding Aussie was on the back foot while the Japanese yen and the Swiss franc were in high demand.

That’s cool and all, but that raises the question: why was the yen’s domination so overwhelming and complete? I mean, seven of the top ten movers are yen pairs, which means that the yen practically won out against every major currency. What gives? Well, that was likely because of….

Shinzo Abe’s Statements

Japanese Prime Minister Shinzo Abe was interviewed by the Wall Street Journal on Tuesday, and he said that countries should refrain from “arbitrary intervention” and “competitive devaluation.”This is worth highlighting since the Japanese yen dropped to a 17-month low against the dollar earlier during the day, thanks to safe-haven flows after Japan’s Nikkei 225 got a severe thrashing.

Market analysts noticed Abe’s rather soft tone on the mighty yen, but interpretations were varied. The Wall Street Journal, for example, said that Abe’s statements were meant to “avoid friction” with the U.S. amidst accusations that Japan is an unfair currency manipulator by U.S. presidential candidates. The Nikkei Asian Review has a different take since it says that Abe’s statements were being aimed at China, which is also regarded as a currency manipulator, but it did touch on appeasing the U.S. as well.

In any case, whoever Abe’s statement was for and for what purpose, the end result was still the same since forex traders apparently interpreted it as confirmation that intervention is not on the Japanese government’s agenda, making the safe-haven yen very attractive given the risk-off vibes during the week and ahead of U.S. earnings season, causing yen pairs to universally grind ever lower for the most of the week after trading roughly sideways on Monday.

USD/JPY: 1-hour Forex Chart

USD/JPY: 1-hour Forex Chart

Okay, we’ve got the Japanese yen and the Swissy covered, so let’s now take a look at what drove the Aussie lower (aside from the risk-off sentiment).

The RBA Statement

The RBA decided to hold the cash rate steady at 2.00% and then released its statement on Tuesday (April 5). And it just so happens that Forex Gump already has a detailed write-up on the RBA statement, so read that (read it here) if you want the details. The gist of it all is that the RBA was still pretty optimistic on the “rebalancing” of Australia’s economy, which refers to Australia’s attempt to be less dependent on commodities exports and the resources sector for growth.

However, what really caught the eyes of astute forex traders was the addition of the statement that  “an appreciating exchange rate could complicate the adjustment under way in the economy,” which is a subtle hint that the RBA does not want the Aussie dollar to go higher.

Most forex traders didn’t immediately catch the RBA’s subtle jawboning, though, since the Aussie spiked higher across the board shortly after the RBA statement was released, before crashing back down later when they discovered the RBA’s ninja-like jawboning.

AUD/USD: 1-hour Forex Chart

AUD/USD: 1-hour Forex Chart

You may have noticed that the Aussie was able to recover on Wednesday, and that was thanks to the return of risk appetite at the time, not to mention the commodities rally (which included iron ore) that fueled demand for comdolls like the Aussie. However, everything wasn’t hunky-dory for the Aussie by Thursday because…

Iron Ore Falls

The iron ore rally stagnated during the Thursday Asian session, thanks to reports that Chinese steel mills incurred losses and that Chinese steel prices were retreating. This stagnation then became a rout when the Thursday London session rolled around, although market analysts couldn’t really pinpoint the catalyst for the selloff.

Iron ore was able to recover on Friday, but the Aussie had already been dragged lower across the board, so the damage was already done.

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