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?
Just one glance at the table above and you can immediately tell that the main theme this week was the Japanese yen’s total domination, although we also have Loonie weakness as a secondary theme. And believe it or not, but the pound ended up as the second-strongest currency of the week So, what was driving forex price action this week?
JPY: BOJ’s Monetary Policy Decision
The yen was the one currency to rule them all during this trading week. And as you can see on the chart above, most yen pairs were trading sideways for most of the week. The yen then began showing signs of strength as the BOJ’s monetary policy decision began to loom ever closer, before appreciating very hard against its peers, like a water through a broken dam, when the BOJ finally announced its monetary policy. So what did the BOJ say or do exactly?
The BOJ lowered it inflation expectations, saying that “The year-on-year rate of change in the CPI is likely to be slightly negative or about 0 percent for the time being, due to the effects of the decline in energy prices.” Haruhiko Kuroda, the BOJ’s shogun, also said during the BOJ press conference after the announcement that the BOJ “will examine risks to the economy and prices, and won’t hesitate taking additional easing steps if needed.” But other than those, the BOJ didn’t really do anything or say anything new.
- Monetary policy maintained
- 7-2 majority vote to keep the benchmark rate at -0.1%
- 8-1 majority vote to keep its monetary base target of around ¥80 trillion a year
- 8-1 majority vote to purchase Japanese government bonds (JGBs) at a pace of ¥80 trillion a year
If y’all can still recall, several Japanese officials have been expressing concern over the yen’s strength due to safe-haven demand, since a stronger yen would mean that Japanese exports would be less competitive, which is very bad for Japan’s export-driven economy.
One example of such rhetoric was the one I cited in last week’s Top Forex Market Movers, wherein Japanese Chief Cabinet Secretary Yoshihide Suga said 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.
As such, the fact that the BOJ decided to sit on its hands (yet again) is a go-signal for yen bulls to keep on buying, and at the same time, it’s a signal to Japanese businesses that relief from the yen’s strength won’t be coming soon, which is why the Nikkei index plummeted by 3.1% in a single day after the BOJ announced its decision to stand pat, spreading risk aversion to other global markets. And that, in turn, naturally meant more safe-haven demand for the yen. Now that’s what you call a vicious cycle! Well, if you were bearish on the yen, that is.
Unfortunately for yen bulls, risk appetite began to return during Thursday’s U.S. session, thanks to easing Brexit fears after a British MP was killed, which convinced the leaders of both the “remain” and “leave” camp to temporarily stop campaigning to pay their respects to the slain MP, capping the yen’s gains in the process.
By the way, Forex Gump has summarized the key points of all the major central bank decisions, and you can read it here, if you’re interested.
CAD: Slide in Oil Prices
The Loonie lost out to everything, making it the worst-performing currency of week. And Loonie bears can thank lower oil prices for that.
- U.S. crude oil up (CLG6) by 1.65% to $48.26 per barrel for the week
- Brent crude oil up (LCOH6) by 2.30% to $49.38 per barrel for the week
The sour sentiment for oil during most of the week was due to oversupply concerns after reports began to circulate that U.S. oil companies were starting to expand their drilling operations in order to take advantage of higher oil prices. Of course, market analysts were also pointing to the risk-off mood, thanks to Brexit jitters ahead of the referendum.
And it’s just trivia at this point, but the Loonie actually started gaining strength before oil prices started to recover, as you can see below. This was due to returning risk appetite, especially in the U.S. markets, after Brexit fears began to ease as I already noted earlier.
As for the recovery in oil prices, that was also attributed to the easing jitters over the probability of a Brexit, although some market analysts also pointed to profit-taking by oil shorts.
GBP: U.K. Jobs Report & Easing Brexit Jitters
Almost all of the Brexit-related polls released during the week actually favored the “leave” camp, but the pound was able to win out against its forex rivals, excepting the mighty yen, as you can see in the table and the chart above. What’s up with that?
Well, the pound actually had two distinct periods during the week wherein it showed broad-based strength. The first occurred during Wednesday’s Asian session. There weren’t any apparent catalysts then, so it was likely due to preemptive positioning ahead of the U.K. jobs report, as I noted in Wednesday’s Asian session recap. The pound then continued grinding higher across the board during Wednesday’s morning London session because the jobs report did indeed come in better-than-expected, with the jobless rate falling to its lowest reading in over ten years.
- U.K. claimaint count change: -0.4K vs. -0.1K expected, 6.4K previous
- U.K. jobless rate: 5.0% vs. steady at 5.1% expected
- U.K. average earnings: 2.0% vs. 1.7% expected, 2.0% previous
- U.K. average earnings (no bonus): 2.3% vs. 2.1% expected, 2.2% previous
After that, the pound’s price action diverged since it weakened against the safe-havens (JPY, CHF, USD) but traded mostly sideways against everything else, except the Loonie, which got a severe beat-down from the pound.
The pound then got a bullish boost during Thursday’s U.S. session, and that was because of easing Brexit jitters after vocal anti-Brexit Labour MP Jo Cox was killed, depending on the witness, either in a deliberate assassination or as collateral damage after attempting to stop an altercation between two men.
Thomas Mair, the suspected killer, is a man who seems to be suffering from mental problems, but mass media outlets are highlighting the suspect’s supposed right-leaning political convictions, as well as focusing on the allegations that the suspect shouted “Britain First!” when he did the nasty deed that he is being accused of. Mass media outlets like The Guardian and the BBC then tried to imply a link to Britain First, a right-wing political group that supports a Brexit.
This allegation that the suspect screamed “Britain First!” seemed unlikely at first because there were conflicting accounts, with at least one witness saying that he heard no such thing. However, mass media outlets reported earlier today that the suspect said in his court appearance that his name is “death to traitors, freedom for Britain” so it now seems more probable.
Anyhow, the unfortunate death of the Labour MP caused both the “remain” and “leave” camps to suspend their campaigns until Monday, which eased Brexit concerns and removed bearish pressure from the pound, allowing it to climb higher across the board. And it’s also possible that some pound shorts were abandoning ship in order to secure profits and/or avoid weekend risk.
However, it remains to be seen if the the Labour MP’s death will have a significant effect on voting intentions. There was a poll released by BMG earlier, and it showed a swing towards the “remain” camp (53% remain vs. 47% leave), but the field work was finished on June 15, which is before the Labour MP’s untimely death.
Do you think these market themes and events will continue to play out next week until the Brexit referendum date? Better keep them in mind when planning your trades for next week!
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