Top Forex Market Movers of the Week (Apr. 18-22, 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.18-22, 2016)

Top Forex Weekly Movers (Apr. 18-22, 2016)

Yen weakness was the main theme for this forex trading week, although we’ve also got pound and Loonie strength, as well as Swissy weakness as secondary themes. So, what was driving forex price action this week?

Another Risk-Friendly Week

  • Shanghai Composite (SSEC) closed 3.86% lower for the week
  • Japan’s Nikkei 225 (N225) closed 4.30% higher for the week
  • Hong Kong’s Hang Seng (HSI) closed 0.79% higher for the week
  • FTSEurofirst 300 (FTEU3) closed 1.60% higher for the week
  • DAX (GDAXI) closed 3.21% higher for the week  
  • DOW (DJI) closed 0.59% higher for the week
  • S&P 500 (SPX) closed 0.52% higher for the week

Mainland Chinese equities may have been down in the dumps for the week, but most of the other major global equity indices were able to close on a higher note, so it’s probably safe to say that we had risk appetite was the dominant sentiment again this week.

What was encouraging the risk-on sentiment, you ask? Well, global equity indices were tracking oil’s price action for most of the week, and oil was in full rally mode, as you can see on the bullet points below.

  • U.S. crude oil up (CLG6) by 8.34% to $43.73 per barrel for the week
  • Brent crude oil up (LCOH6) by 4.50% to $45.13 per barrel for the week

But wait, why is oil up? Didn’t the Doha oil freeze deal fail to pan out? What happened after the Doha oil freeze deal? Well, Forex Gump already has a quick write-up for that, so go ahead and check that out if you want the details (read it here).

Anyhow, the prevalence of risk-on sentiment during the week helps to explain why demand for the safe-haven currencies like the Japanese yen and the Swiss franc got sapped. It’s worth noting, however, that five out of the top ten movers of the week are yen pairs, which really highlights the yen’s vulnerability. So, why was the yen so weak?

BOJ Rumors

USD/JPY: 1-hour Forex Chart

USD/JPY: 1-hour Forex Chart

As you can see on the chart above, the intraweek forex price action of most yen pairs can be divided into two phases: (1) the slow grind and (2) the surge. The “slow grind” phase can easily be attributed to the general risk appetite during the week, but the “surge” phase, which happened on Friday, was more mysterious, so much so that I expressed my bewilderment during Friday’s Asian session forex recap.

As it turns out, the “surge” phase was apparently due to a Bloomberg “report” wherein it was claimed that Bloomberg was able to get in touch with unnamed “people familiar with talks at the BOJ.” These unnamed people divulged that the BOJ may decide to cut the negative interest rates on deposits even deeper during next week’s monetary policy meeting. In addition, the BOJ may even consider implementing negative interest rates for some loans, which means that the BOJ will essentially be paying Japanese banks to take out loans. This would then give the BOJ even more breathing space to slash the negative interest rate on deposits much deeper without adversely affecting Japanese banks too much.

I don’t really know for sure if the Bloomberg ”report” was the true catalyst or not, but financial media outlets like Reuters (and even Bloomberg itself) are claiming that the Bloomberg “report” was the catalyst for the yen’s broad-based weakness on Friday, so it probably was.

Okay, we’re done with the weakest currency of the week, so let’s take a closer look at the strongest currency. But first, can you guess which currency was the one currency to rule them all? If you chose the Loonie because of the risk-friendly environment and the oil rally, I’m sorry but I have to tell ya that you’re close but no cigar since the Loonie was only the second-strongest currency of the week, as you can see on the table below.

Loonie Pairs Ranking (Apr.18-22, 2016)

Loonie Pairs Ranking (Apr.18-22, 2016)

And as you can also see, the Loonie barely lost out to the pound, which makes the pound the king (or queen, if you like) of pips this week. So, what’s up with the pound?

The ECB Press Conference

If you look at how the price action of pound pairs went down, you’ll notice that the pound had a mixed performance from Monday to Wednesday since it clobbered the safe-havens and the lower-yielding euro while getting clobbered by the higher-yielding comdolls.

GBP/USD: 1-hour Forex Chart

GBP/USD: 1-hour Forex Chart

Price action then became more uniform on the latter half of Thursday and more prominently on Friday, as pound pairs climbed higher across the board. There weren’t any major catalysts for the pound on Friday, and economic reports on Thursday were mixed. However, the pound was following the euro’s price action for most of the week, as you can see on the chart below.

GBP/USD vs. EUR/USD: 1-hour Forex Chart

GBP/USD vs. EUR/USD: 1-hour Forex Chart

That all ended on Friday, though, since the price action of euro and pound pairs diverged, with most euro pairs heading down south while pound pairs broadly made their way north.

Was the diverging price action because of the ECB press conference? What was discussed during the ECB press conference that caused the pound to appreciate? Well, ECB Draghi was asked about the potential Brexit, to which Dragi replied the following, according to the official transcripts of the ECB press conference:

“Certainly the discussion about this possibility has already produced some significant consequences on the markets, for example a depreciation of sterling, quite significant. We do expect a continuation of market volatility, certainly until the referendum; I don’t want to speculate about the outcome of the referendum, but probably even after the referendum. Is it enough to endanger the economic recovery in the euro area? The assessment of our staff is that the risk of this happening is limited.”

I have to admit that there’s not really much for pound bulls to chew on. The overall tone of the press conference was a bit dovish, though, which is probably why sentiment on the euro soured. And it looks like pound bulls were just taking advantage of the euro’s overall weakness, so you can can say that the pound indirectly benefited from the ECB press conference.

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!