Top Forex Market Movers of the Week (Sept. 26-30, 2016)

The forex trading week has come and gone. Time to take a look at what was driving forex price action. Were you able to profit from any of this week’s top movers?

Top Forex Weekly Movers (Sept. 26-30, 2016)

Top Forex Weekly Movers (Sept. 26-30, 2016)

Trading conditions were pretty bad for longer-term traders, given the very low percentage changes for the week. However, there was enough action to keep shorter-term traders happy. Anyhow, half of the top 10 movers are yen pairs. And it just so happens that the yen got whupped in all of them. The main theme this week therefore appears to be yen weakness.

JPY

USD/JPY: 1-Hour Forex Chart

USD/JPY: 1-Hour Forex Chart

JPY Pairs Ranked (Sept. 26-30, 2016)

JPY Pairs Ranked (Sept. 26-30, 2016)

The yen was the weakest currency of the week. And while it’s possible that we’re just seeing some profit-taking after three straight weeks of yen strength, overall developments during the week were also not very beneficial for the safe-haven yen.

The yen initially showed strength on Monday, thanks to the prevalence of risk aversion. And the gloomy mood was apparently due to reports over the weekend that Merkel’s government won’t be providing state assistance to Deutsche Bank. For those who don’t know, Deutsche Bank was slapped with a whopping, record-high $14 billion fine in order to settle allegations that it improperly sold mortgage-backed securities. Forex Gump has a quick write-up on the Deutsche Bank potential debacle here, so go ahead and read that if you wanna know more.

Moving on, the yen tried to strengthen some more on the back of the BOJ meeting minutes, which is weird because the minutes were for the July meeting, and not for the more recent September meeting wherein the BOJ revamped its monetary policy framework.

The yen’s attempts at gaining strength got cut short when the Asian equities market opened and it became clear that risk-taking was the name of the game. The returning appetite for risk was supposedly due to the perception that Hillary Clinton won in the first U.S. presidential debate. Well, that’s what some market analysts said anyway.

Fortunately (for yen bulls), risk aversion returned during the European session as renewed jitters over Deutsche bank weighed down on European equities and overall sentiment. After that, the yen traded roughly sideways against most of its peers before weakening across the board during Wednesday’s late U.S. session.

The yen’s weakness was very likely due to the revival of risk appetite, thanks to the OPEC deal. I won’t be discussing the details of that deal because Forex Gump already has a detailed write-up on that, which you can read here. The gist of it, though, is that OPEC members agreed to cut production for the first time in 8 years. And this plan to cut oil production caused oil to spike higher, which also pushed energy shares higher, improving overall risk sentiment in the process.

However, demand for the yen ramped up again during Thursday’s U.S. session when relatively credible financial media outlets like The Wall Street Journal and The Financial Times began printing reports alleging that hedge funds and other large clients were cutting down their exposure on Deutsche Bank, which caused Deutsche Bank shares to plunge, poisoning overall risk sentiment.

Concerns over Deutsche Bank persisted until Friday’s morning London session, but the yen was already losing ground yet again by then. This wonky price action was probably due to month-end flows. And for those who don’t know and for those who missed my London session recap on Friday, I noted then that hedge funds, mutual funds, pension funds, and other large players usually rebalance their portfolios and/or prepare to make cash distributions at the end of the month, so some rather weird price action is to be expected.

All became right with the world later on, though, because risk appetite returned with a vengeance, as Deutsche Bank rallied hard on the back of reports that Deutsche Bank is about to close a deal with the U.S. DOJ to substantially lower its fine from $14 billion to $5.4 billion. Naturally, this weakened the safe-haven yen further, so much so that it ended the week lower against all its rivals.

The Other Currencies

Okay, here’s how the other currencies fared this week:

NZD & AUD

NZD Pairs Ranked (Sept. 26-30, 2016)

NZD Pairs Ranked (Sept. 26-30, 2016)

AUD Pairs Ranked (Sept. 26-30, 2016)

AUD Pairs Ranked (Sept. 26-30, 2016)

I lumped these two currencies together because they were the main winners this week. In addition, both of them were actually trading mostly sideways, but somehow ended up as net winners.

NZD/USD: 1-Hour Forex Chart

NZD/USD: 1-Hour Forex Chart

AUD/USD: 1-Hour Forex Chart

AUD/USD: 1-Hour Forex Chart

Demand for the two comdolls was likely underpinned by the commodities rally this week, particularly the strong performance by base metals and oil, which allowed the Bloomberg Commodity Index to close 1.21% higher to 85.3420 (previous week’s close: 84.3221).

Bloomberg Commodity Index

Bloomberg Commodity Index

In fact, the commodities rally on Monday was likely the reason why the two comdolls were able to advance, despite the risk-off vibes. The two higher-yielding comdolls also benefited from the risk-on vibes supposedly brought about by Hillary Clinton’s victory in the U.S. presidential debates, as well as the risk-taking in the aftermath of the OPEC deal. But on the flipside, the two comdolls also got weighed down whenever risk aversion popped its head.

Still, the commodities rally and overall events during the week were net positive for the two currencies, and so they ended up being the main winners. However, the Kiwi managed to edge out a win against the Aussie, allowing it to (barely) end up as the one currency to rule them all this week.

Oh, do note that the RBA statement is next week, so do keep an eye on the Aussie. The Kiwi could potentially be getting a top-tier catalyst as well, since RBNZ Guv’nah Wheeler would be giving a speech next week.

CHF

USD/CHF: 1-Hour Forex Chart

USD/CHF: 1-Hour Forex Chart

CHF Pairs Ranked (Sept. 26-30, 2016)

CHF Pairs Ranked (Sept. 26-30, 2016)

Like the yen, the Swissy is a safe-haven currency as well. It’s therefore natural to think that whatever factors were weighing down on the yen were also responsible for slapping the Swissy around. After all, the Swissy did end up as the second weakest currency of the week.

Well, it’s not as simple as that. As you can see on the chart above, the Swissy actually had a rather mixed performance from Monday until Thursday’s Asian session, which implied that it was vulnerable to opposing currency price action.

However, the Swissy began to show signs of strength during Thursday’s morning London session, as signs of risk aversion began to return amidst growing doubts on the effectiveness of the OPEC deal. And as highlighted in the chart above, the Swissy then went into hulk-smash mode when the reports about hedge funds pulling out from Deutsche Bank began to circulate, which, as discussed earlier, is also when the yen gained strength.

Later, the Swissy mysteriously and strongly weakened across the board during Friday’s morning London session. Risk aversion was the dominant sentiment at the time, so the wonky price action may have been due to month-end flows. However, the sudden weakness was so intense that some market players and analysts began speculating that the sneaky SNB was intervening in order to weaken the Swissy.

In any case, the Swissy’s sudden weakness was more than enough to wipe out whatever gains the Swissy had against most of its peers, which is why the Swissy ended up a net loser.

CAD

USD/CAD: 1-Hour Forex Chart

USD/CAD: 1-Hour Forex Chart

CAD Pairs Ranked (Sept. 26-30, 2016)

CAD Pairs Ranked (Sept. 26-30, 2016)

Loonie pairs were more or less tracking oil prices during the week. And since oil jumped higher on reports that OPEC managed to seal a deal for a plan to cut oil production, the Loonie naturally jumped higher as well. And if you missed it earlier, you can read more about the details of the OPEC deal here.

Getting back on topic, one thing worth pointing out, though, is that Loonie pairs broadly decoupled from oil prices during Thursday’s U.S. session. There was no apparent reason for this, but it’s possible that the decoupling was due to profit-taking ahead of Canada’s monthly GDP report.

And we can’t really pin the blame on risk aversion because the decoupling caused the Loonie to lose out to both the Kiwi and the Aussie, which are both higher-yielding currencies. Incidentally, this decoupling is the reason why the Loonie was only the third best-performing currency after the Kiwi and the Aussie.

EUR

EUR/USD: 1-Hour Forex Chart

EUR/USD: 1-Hour Forex Chart

EUR Pairs Ranked (Sept. 26-30, 2016)

EUR Pairs Ranked (Sept. 26-30, 2016)

The euro was mixed this week, but looking at the overall direction of all euro pairs (except EUR/JPY), it’s clear that the euro was trading ever lower. But wait, European equity indices were mostly in the red this week, shouldn’t that result in a stronger euro?

  • Euro Stoxx (STOXX50E) closed 0.91% lower to 3,004.67 for the week
  • DAX (GDAXI) closed 1.09% lower to 10,511.02 for the week
  • FTSE 100 (FTSE) closed 0.15% lower to 6,899.33 for the week

Well, that would be true under normal conditions. However, the main reason for the slump in European equities this week were all the jitters caused by Deutsche Bank, which made investors worry about the overall health of the Euro Zone’s banking system. After all, Deutsche Bank is Germany’s biggest bank.

In the same vein, the recovery in Deutsche Bank shares on Friday, which we already talked about earlier, also caused the euro to spike higher across the board, which is why it was mixed. Heck, if that spike didn’t happen, then the euro would have ended up as the worst-performing currency of the week.

GBP & USD

GBP Pairs Ranked (Sept. 26-30, 2016)

GBP Pairs Ranked (Sept. 26-30, 2016)

USD Pairs Ranked (Sept. 26-30, 2016)

USD Pairs Ranked (Sept. 26-30, 2016)

These two currencies were trading sideways and their respective price action were very messy, so they appeared to be vulnerable to opposing currency price action. And that, in turn, means that forex traders didn’t have a clear bias on the two currencies.

GBP/USD: 1-Hour Forex Chart

GBP/USD: 1-Hour Forex Chart

USD/JPY: 1-Hour Forex Chart

USD/JPY: 1-Hour Forex Chart

The lack of interest on the pound is somewhat understandable, given the lack of top-tier reports. However, the lack of interest on the Greenback is somewhat strange because of all the speeches delivered by several Fed officials this week. Perhaps forex traders were still mulling over the FOMC statement?

Hopefully, we’ll be getting some action from these two currencies next week, since the U.S. NFP report is coming up while the U.K. will be getting its PMI reports.

Okay, here’s this week’s scorecard:

Scores (Sept. 26-30, 2016)

And here’s last week’s poll results:

Last Week's Poll

Well, the 5.77% who voted for the Kiwi got it right. Although the 13.46% who voted for the Aussie and the 5.77% who voted for the Loonie came in close. Over a quarter of you voted for the yen, though. Hopefully, you weren’t hurt too bad, given the relatively small percentage changes for the week.

Now that you know what the likely drivers were last week, and having taken a look at the forex calendar, which currency do you think will come out on top this week? Vote in the poll below!

 

 

  • Costa

    Hi Pip Diddy,
    Could you please explain why the euro should get stronger if the equity indices go lower?
    Many thanks.
    Regards

    • Pip Diddy

      Hi Costa!

      The euro’s negative correlation to equities is not as strong compared to the yen, but it’s there. My weekly recap for Aug. 22-26 is a good recent example of when this negative correlation, particularly to European equities, was noticeably strong.

      http://www.babypips.com/blogs/pipnoculars/forex-weekly-20160827.html

      And the main reason for this is the euro’s growing use as a funding currency for carry trades, which just means that market players borrow in euros to fund investments/trades in riskier yet higher-yielding assets or instruments. During risk-on times, for example, a hedge fund may be enticed to borrow in euros, and then sell those euros to buy the higher-yielding Kiwi dollar. And when risk aversion returns, the hedge fund may decide to dump its Kiwi dollars and then buy up the euro in order to repay its euro-denominated loan.

      There are other reasons as well. For example, Germany, the Euro Zone’s economic powerhouse, has an export-driven economy. A stronger euro would therefore make German exports less competitive, which is bad for the Euro Zone economy.

      Another reason that some people cite is that the euro is supposedly a safe-haven.

      The article from August 2015 below, for example, is from Bloomberg, and it asserts that the euro has become a new safe-haven.

      http://www.bloomberg.com/news/articles/2015-08-27/euro-as-new-haven-moves-opposite-to-stocks-by-most-in-a-decade

      I don’t buy the idea that the euro is a safe-haven currency, though. Originally, the euro was indeed a safe-haven when the Euro Zone had very solid fundamentals. However, it lost that status during the Euro Zone debt crisis, which is still ongoing in countries like Portugal and Greece. The Bloomberg article did note that the euro is being used as a funding currency for carry trades, though. And I assert that that is the real reason why the euro usually strengthens during risk-off times and weakens during risk-on times.

      I guess the short answer to your question is that the euro behaves like a safe-haven currency (even though it is not) because of its widespread use as a funding currency.

      Of course, sentiment is also a factor. If enough people believe that the euro is a safe-haven (even though it technically is not), and if enough of them have enough speculative positions to influence the euro’s price action, then the euro will move like a safe-haven (even though it’s not).

      Man, my answers tend be to long. Sorry about that, but I hope that clarified things for ya!

      • Costa

        Hi Pip Diddy,
        Your answer is perfect! Thank you very much for the clarification

        • Pip Diddy

          You’re very welcome, Costa! And happy to know I could help ya out.

    • Pip Diddy

      Oh, forgot to add that equities are considered as risky assets, so when equities rise, then that’s taken as a risk-on sign. Conversely, if equities sink, then that’s a sign of risk aversion.

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  • ForExchange

    Hi Pip Diddy,

    I do not remember that it ever happened before (since you make these weekend write-ups) that not a single currency pair reached the 100 pips difference in the end of the week compared to the open price.

    I liked the new feature, the Bloomberg Commodity Index graph.

    Have a good week,
    FE

    • Pip Diddy

      Heya ForExchange!

      Yeah, it really was that bad for longer-term traders. Hopefully, we’ll get more action this week.

      Regarding the Bloomberg Commodity index, I was actually just too tired to write a list on how price action went down on a basket of commodities, so I just put that up. Looks like it did the job well enough. 🙂

      And you have a good week too!

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