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?
Lots of themes played out during the trading week, but pound weakness and Kiwi strength were the dominant themes. Other than that, we’ve also got euro and yen weakness, as well as demand for the Loonie, and the Swissy.
Whew! Looks like we’ve got a lot of currencies to cover, so without further ado, let’s take a look at what was driving forex price action this week.
GBP: More Polls & Pre-Referendum Jitters
The pound was the weakest currency of the week, and as usual, we can blame the pound’s broad weakness on another round of mostly disappointing Brexit-related polls, as well as jitters as the Brexit referendum looms ever closer. Told ya to keep an eye on them polls!
The pound started the week on a weak footing, with most pound pairs gapping lower during the Asian open, thanks to a poll published by Opinium over the weekend, which showed that the “leave” camp had a 3-point lead (43% leave vs. 40% remain, 17% undecided). This is unadjusted, however, since online respondents supposedly tend to be socially conservative, which makes them favor a pro-Brexit position more. After adjustments, the readings are actually flipped since the “remain” camp is now shown to be in the lead (43% remain vs. 41% leave, 16% undecided).
Two more polls were released on Monday, namely the YouGov poll, which showed that the “leave” camp had a 4-point lead versus the “remain” camp (45% leave vs. 41% remain, 11% undecided), and the ICM poll, which revealed that the “leave” camp had a 5-point advantage against the “remain” camp (48% leave vs. 43% remain, 9% undecided).
The two aforementioned polls applied bearish pressure on pound pairs, but bulls started coming in when Monday’s early U.S. session rolled around. It’s not clear what enticed the bulls to start jumping in, but it’s may have been due to profit-taking after last week’s pound carnage, although it’s also possible that forex traders were just trying to close the gaps.
In any case, a YouGov poll released during Monday’s late U.S. session finally gave the bulls enough “oomph” to push the pound higher since the poll showed that the “remain” camp had a 1-point lead (43% remain vs. 42% leave, 15% undecided). However, fresh sellers started coming in (or pound bulls started bailing out) once all the gaps have been filled.
No new polls were released after that, but pound pairs slowly drifted lower during the course of the week, likely because of uncertainty ahead of the June 23 Brexit referendum. Pound pairs then got kicked lower across the board during Friday’s U.S. session, thanks to a new Orb poll which showed that the “leave” camp had a commanding 10-point advantage versus the “remain” camp (55% leave vs. 45% remain, no undecided).
NZD: The RBNZ Statement & Presser
I noted in last week’s Top Forex Market Movers that the Kiwi was the strongest currency at the time, probably because of lower rate cut expectations. Well, it just so happens that the RBNZ refrained from cutting rates, which caused the Kiwi to surge higher and end up as the best-performing currency of the week for the second week running.
But as you can see on the chart, the Kiwi’s rise actually started on Tuesday.There weren’t any apparent catalysts for the Kiwi, though, so it may have been due to preemptive positioning ahead of the RBNZ statement or demand for the higher-yielding Kiwi due to the appetite for risk at the time.
Anyhow, Forex Gump already has the details on RBNZ statement and press conference, and you can read his write-up here, if you’re interested.
The gist of it all is that the RBNZ is still open to cutting rates further, but the threat of causing a housing bubble is making it difficult for the RBNZ to cut, so much so that RBNZ Governor Wheeler said that “House price inflation in Auckland and other regions is adding to financial stability concerns.”
The RBNZ was also concerned that the prevalence of risk appetite in the recent months has led to more demand for the higher-yielding Kiwi, but Wheeler was forced to admit that the RBNZ can’t easily intervene in the forex market because the RBNZ’s reserves are limited, which likely attracted even more Kiwi bulls.
There were some more interesting stuff, such as the RBNZ’s forecast that the Kiwi will steadily weaken until 2017. Kiwi bulls didn’t seem to be too bothered by that, though, likely because the RBNZ’s forecast for the Kiwi’s drop relies heavily on external factors, such as a rate hike from the U.S. Fed or continued growth in New Zealand’s trading partners.
CAD: Oil & Canada’s Jobs Report
Oil and other commodities were in rally mode from Monday to Wednesday, thanks to a weakened Greenback in the aftermath of last week’s dismal NFP report. For the newbies out there, globally-traded commodities are generally denominated in U.S. dollars, so a weaker Greenback makes commodities relatively cheaper for buyers who have other currencies on hand.
Getting back on topic, the Loonie was tracking oil’s rise from Monday to Wednesday and also began to give back its gains when oil began to retreat during Thursday’s morning London session, likely due to profit-taking and a recovering U.S. dollar, as I mentioned in my session recap. However, oil and the Loonie parted ways during Friday’s U.S. and London sessions since Loonie pairs held steady as oil continued to weaken, likely because forex traders were getting ready for Canada’s jobs report.
The Loonie then got a final bullish push when Canada’s jobs report came in better-than-expected as you can see on the bullet points below:
- Canadian net change in employment: 13.2K vs. 1.8k expected, -2.1K previous
- Canadian jobless rate: 6.9% vs. 7.2% expected, 7.1% previous
Demand for the Loonie quickly evaporated on most pairs (except GBP/CAD), however, since the Loonie began giving back its gains as it started tracking oil lower once more.
JPY: Early Risk Appetite & Lack of Love
Risk-taking was the name of the game at the start of the week, thanks to the commodities rally that I already mentioned earlier. A risk-on environment weakens demand for safe-haven currencies, however, so forex traders dumped the Japanese yen in favor of riskier assets such as commodities and equities.
Risk aversion was able to make its way into the global markets as the week progressed and so the yen slowly recovered. The damage was already done, though, and the yen wasn’t able to stage a full recovery by the end of the trading week, which is kinda strange since risk aversion usually sends forex traders screaming in panic towards the yen.
Maybe forex traders are heeding Japanese Chief Cabinet Secretary Yoshihide Suga’s statement that “Rapid foreign-exchange moves are not desirable” and that the Japanese government would be keeping a close eye on the yen’s forex moves?
EUR & CHF: Pre-Referendum Skittishness
The charts for the euro and the Swissy are both pretty messy, huh? No clear turning points or broad-based surge in volatility, and there wasn’t really a lot in terms of catalysts for both currencies to boot. It’s quite clear, however, that the euro was showing mostly weakness while the Swissy was gaining strength. It becomes even clearer when you look at the tables below and note that the euro lost out to everything except the pound while the Swissy won out against most of its forex rivals, with the exception of the Kiwi and the Loonie.
Market analysts attributed this jitters ahead of the Brexit referendum, which is apparently weakening demand for the euro, as well as assets denominated in euros, since a possible Brexit would not only potentially hurt the U.K., but the Euro Zone as well. And investors who are unwinding their positions on euros and euro-denominated assets are switching over to the safe-haven Swissy. I guess you can say that the Swissy is like a vampire that’s sucking up the euro’s life force. Makes you wonder what SNB Chairman Thomas Jordan has to say in next week’s SNB monetary policy assessment, huh?
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!
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