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?
It looks like we’ve got pound domination as this week’s main theme, with Greenback strength, as well as weakness on the part of the yen and the Swissy as secondary themes. So, what was driving forex price action this week?
GBP: Brexit Polls & Positive U.K. Economic Data
The pound’s rise began during Monday’s U.S. session. And as I mentioned in my recap for that session, the pound was getting a bullish boost due to Brexit-related polls showing a slight lead in anti-Brexit votes.
The pound then got a substantial bullish infusion during Wednesday’s London session. I noted in my recap then that most market analysts were attributing the burst of bullish momentum to a Brexit-related poll conducted by the Evening Standard newspaper and Ipsos Mori since the poll showed that the “remain” camp had a significant 18 percentage points advantage over the “leave” camp.
The U.K. also posted a positive jobs report before the bullish spike, but the market reacted by sending the pound higher only to dump it later. Although it is possible that those who were shorting the pound got caught with their pants down by the poll results, triggering their stops while sending the pound ever higher. If that were indeed the case, then the positive jobs report still helped to drive the pound’s price action in a manner of speaking.
Moving on, the pound got another bullish injection when the very upbeat retail sales report was released during Thursday’s morning London session. However, that was the last hurrah for the bulls because pound pairs began to slide lower after that.
Some market analysts blamed the pound’s slide on doubts over the “remain” camp’s advantage because Reuters and other financial media outlets were focusing on some polls which showed that the “leave” camp was slightly ahead, such as the poll results from TNS wherein the “leave” camp was ahead by 3 percentage points. I think it’s just profit-taking to avoid weekend risk, though, just in case more Brexit-related news are released over the weekend.
CHF & JPY: Mostly Risk-Friendly Week
- Shanghai Composite (SSEC) closed 0.06% lower for the week
- Japan’s Nikkei 225 (N225) closed 1.98% higher for the week
- Hong Kong’s Hang Seng (HSI) closed 0.67% higher for the week
- FTSEurofirst 300 (FTEU3) closed 0.80% higher for the week
- U.K. FTSE 100 (FTSE) closed 0.29% higher for the week
- DOW (DJI) closed 0.20% lower for the week
- S&P 500 (SPX) closed 0.28% higher for the week
Equities are considered risky assets, so global equity indices are excellent for gauging the market’s overall risk sentiment. And as y’all can see on the bullet points above, most of the major global equity indices were able to close out the week on a high note, so risk appetite was the dominant market sentiment during the trading week.
And since risk appetite was the dominant sentiment, it naturally follows that demand for the lower-yielding safe-haven currencies (USD, CHF, JPY) is gonna suffer, which is why the Swissy and the Japanese yen got a slap-down from their forex rivals during the week, as you can see in the tables below.
But wait, isn’t the U.S. dollar a safe-haven currency as well? Why didn’t it suffer the same fate as its fellow safe-havens. Heck, it was even the second strongest currency during the week. What’s up with that?
USD: FOMC Minutes
As y’all can see on the chart above, the Greenback had a mixed performance during the first two days of the trading week, but began grinding uniformly higher (except against the mighty pound, of course) on Wednesday, as forex traders began to anticipate that the minutes for the April FOMC meeting will sound more hawkish.
Well, it turned out to be very hawkish indeed since Fed officials were open to hiking rates in June so long as economic data that come out before the June meeting are supportive of a rate hike.
There were also some rather puzzling and slightly worrying details, such as needing to hike rates in order not to lose confidence in the Fed and talks about financial stability risks, but the details of the minutes were pretty hawkish overall, especially the openness to a June rate hike, and that’s seems to be the only thing that mattered to most forex traders since the Greenback halted its decline against the pound while surging even higher against the rest of its forex rivals.
Bonus: The Loonie’s Loony Price Action
It’s not very clear from the list of top market movers, but the Loonie was a net loser during the week, winning out against the yen and the Swissy while losing to everything else.
That doesn’t seem very strange, but consider that it was a mostly risk-friendly week, which should have kept the higher-yielding Loonie supported. Stranger still, oil benchmarks closed the week in the green.
- U.S. crude oil up (CLG6) by 4.45% to $48.45 per barrel for the week
- Brent crude oil up (LCOH6) by 2.03% to $48.80 per barrel for the week
And as our resident ninja pointed out in his (or her? I don’t really know because he won’t take of his mask) recent write-up on intermarket correlations, there seems to be some decoupling between the Loonie and oil prices. Again, kinda loony.
Most market analysts haven’t really brought up this seeming break in correlation and the Loonie’s wonky price action, but if you consider that oil’s recent climb is being attributed mainly to the wildfires that raged in Canada’s oil-rich province of Alberta (among others), then it kinda makes sense that higher oil prices won’t have that much of an impact on the Loonie given that Canada’s oil production was disrupted by that unfortunate event. In simpler terms, higher oil prices don’t really mean as much if you don’t really have a lot of oil to sell.
The lack of demand for the Loonie despite the higher oil prices, therefore, is likely due to forex traders pricing-in the damage that the wildfires have and/or will bring to Canada’s oil-dependent economy. Although it’s also possible that Loonie longs were just abandoning the Loonie ship ahead of the BOC’s monetary policy decision next week.
Do you think these market themes and events were enough to spark longer-term forex trends? Better keep them in mind when planning your trades for next week!