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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 (Dec. 7-11, 2015)
Top Forex Weekly Movers (Dec. 7-11, 2015)

One look at that there list and you already know that Loonie weakness was the main theme of this forex trading week given that 6 out of the top 10 movers are Loonie pairs. In addition, we also have Aussie weakness as a secondary theme and demand for the safe-haven yen and Swissy, as well as the lower-yielding euro as minor themes. So, what drove this trading week’s forex price action? Let’s dive right in, shall we?

Commodities Carnage

  • U.S. crude oil is down by 11.6% to $35.35
  • Brent crude oil is down by  12.3% to $37.71
  • Iron ore (62% content) down is down by 4.3% to $38.30

There was a broad-based rout in commodities during the forex trading week, with oil getting slammed the hardest. Oil’s slide started early in the week since I first mentioned it in Monday’s Asian Session Forex Recap. And as I noted then, the main reason for the decline in oil prices was likely due to continued disappointment over the Organization of the Petroleum Exporting Countries’ (OPEC) decision to not rein in high levels of oil production despite falling oil prices. Most market analysts are saying the same thing, and Forex Gump also said as much in one of his more recent write-ups.

As of Friday, U.S. crude oil was down by 11.6% for the week to $35.35 per barrel, a six-year low, while Brent crude oil was was down by 12.3% for the week to $37.71 per barrel, which is a seven-year low. Overall, oil registered the deepest ever weekly dive for this year.

Anyhow, the slump in oil was obviously horrible news for Canada, which is most likely why the Loonie was the worst performing currency during the forex trading week. And if you’re wondering why, then you probably did not read (or forgot about) our School’s lesson on How Oil Affects USD/CAD. The gist of it, though, is that Canada’s economy is heavily dependent on oil exports, so lower oil prices is gonna be bad for Canada’s economy.

CAD/JPY vs Oil (red line) 1-hour Forex Chart
CAD/JPY vs Oil (red line) 1-hour Forex Chart

Moving on, another commodity that was getting hammered very hard during the forex trading week was iron ore, which is to Australia what oil is for Canada. As of Friday, iron ore with 62% content delivered to Qinqdao, China was down by 4.3% to $38.30 per dry metric ton, which is a six-year low. Also, this week’s slump marked the ninth consecutive week of declining iron ore prices, which is probably why forex traders were also very bearish on the Aussie.

Risk Aversion Domination

  • FTSEurofirst 300 (FTEU3) is down by 4.14%
  • DAX (GDAXI) is down by 3.83%
  • DOW (DJI) is down by 3.26%
  • S&P 500 (SPX) is down by 3.79%
  • Japan’s Nikkei 225 (N225) is down by 1.40%
  • Hong Kong’s Hang Seng (HSI) is down by 3.47%

The commodity rout, especially the slump in oil prices, and concerns over China caused risk aversion to infect the global equities market like a plague for pretty much the entire week, with energy-related stocks leading the dive into the abyss.

The pan-European FTSEurofirst 300 was down by 4.14% to a two-month low of 1,397.49 while Hong Kong’s Hang Seng was down by 3.47% to 21,464.05, which is also a two-month low.

All that risk aversion was pretty toxic for the higher-yielding currencies like the Loonie and the Aussie and only served to further sap them of demand, but such a risk-off environment generated capital flows from global equities and the higher-yielding currencies into the Japanese yen and the Swissy due to their status as safe-haven currencies. The lower-yielding euro was probably benefiting from capital flows as well since European equities were bleeding out pretty bad.

Interestingly enough, the U.S. dollar, which is also deemed to be a safe-haven currency, was not getting a lot of buyers even though the FOMC statement and the highly-anticipated (potential) rate hike is looming ever closer. In fact, the U.S. dollar index was even lower for the week, as you can see below.

U.S. Dollar Index: 1-hour Forex Chart
U.S. Dollar Index: 1-hour Forex Chart

The U.S. even got a slew of mostly positive economic reports during the forex trading week while the economic reports for Japan were more mixed and Switzerland only really had the SNB’s monetary policy assessment wherein SNB officials tried to jawbone the Swissy as usual. Maybe some forex traders who have been betting on a December rate hike are liquidating their Greenback longs ahead of the FOMC statement? Although it’s also possible that some forex traders were doubting a December rate hike due to oil sinking to new multi-year lows.

Do you think these catalysts were enough to spark longer-term forex trends or did they just cause a knee-jerk reaction? Better keep these market themes in mind when planning your trades for next week!