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 like last week, the pound, the yen, and the Kiwi were in focus this week. But unlike last week, the pound became this week’s main winner while the Kiwi and the yen became this week’s top losers. So, what caused this reversal of fortune? Time to see what was driving forex price action this week!
I mentioned last week that Theresa May (anti-Brexit) and Andrea Leadsom (pro-Brexit) were the only two aspiring British PM candidates that were left after a couple of ballots eliminated the rest. I also said that we won’t get the results on who the next British PM would be until September 9. It therefore came as a surprise when Leadsom announced that she was pulling out of the race, leaving Theresa May as the uncontested candidate, and ascending to become the new British PM during the week.
Leadsom explained that she finally decided to give way to May because Leadsom believes that she does not have enough support for a “strong and stable government,” given that she only has the support of 84 MP’s while May has 199 supporters. Also, Leadsom believes that May is “ideally placed” to start negotiations for an actual Brexit.
These rapid and unexpected developments significantly reduced political uncertainty, which likely convinced pound bears to take some profits off the table while simultaneously convinced the bulls to begin loading up.
Easing political uncertainty is not the only catalyst for the pound’s bullish move this week, though. Another catalyst was the BOE’s decision to stand pat amidst heavy speculation that it will cut rates in response to the Brexit referendum.
Interestingly enough, the pound began getting buyers ahead of the BOE MPC rate announcement, as you probably observed in the chart above. And that’s likely because financial institutions like Barclays were saying that the BOE was unlikely to cut rates this month. And when the BOE did announce that it wasn’t cutting this month, pound pairs spiked across the board. There was constant selling pressure, though, probably because the BOE warned that MPC members “expect monetary policy to be loosened in August.“
Still, the bulls won out in the end, although pound pairs later began dipping on Friday, likely due to profit-taking, as well as a Friday statement from BOE Chief Economist Andrew Haldane that “a material easing of monetary policy is likely to be needed, as one part of a collective policy response aimed at helping protect the economy and jobs from a downturn” and that this monetary response must be “delivered promptly as well as muscularly” by “next month” in order to “buttress expectations and confidence,” which reinforced the idea that the BOE will likely be cutting in August.
By the way, you can read Forex Gump’s write-up on the 5 Takeaways From the BOE’s Policy Decision, if you wanna know more on what the BOE MPC members had to say on Thursday.
I mentioned last week that it seemed like forex traders were unwilling to let go of the yen. And that was probably because they were waiting on the Japanese Upper House election results and what the new government would do.
And as it turns out Shinzo Abe’s ruling party ended up winning, which didn’t create that much of a stir at first since yen pairs started off on Monday relatively flat. However, rumors soon began to spread that Abe will introduce another stimulus package. And those rumors turned out to be well-founded since Abe later confirmed that a stimulus package is indeed in the works. Forex Gump has the deets on that here, if you’re interested.
The rumors and later confirmation from Abe caused the yen to depreciate very hard against all its forex rivals. In addition, the planned stimulus package helped to cause a flurry of risk-taking activity in the Japanese market, especially the equities market, which then spread to the other global markets.
Naturally, the rampant risk-taking during the week dampened safe-haven demand for the yen, which is another reason why the yen got a beat-down this week.
I advised the Kiwi bulls among you last week to make sure to trail your stops. And that turned out to be a really good advice, since the Kiwi ended up as the second-weakest currency of the week.
And as you can see on the chart above, the Kiwi started the week on a weak footing, likely due to profit-taking after last week’s strong performance. It then traded sideways while mostly winning out until Thursday rolled around.
So what happened on Thursday? Well, the RBNZ announced that it will issue an unscheduled assessment of New Zealand’s economy by next week (July 21). The RBNZ justified this surprise assessment by saying that there’s a “longer-than-usual gap” between its monetary policy statements and the RBNZ even clarified that this assessment doesn’t include a review of the key policy rate.
Nonetheless, the surprise announcement convinced many forex traders that the RBNZ is worried about New Zealand’s economy, which put rate cut expectations back into play and sent the Kiwi lower across the board, according to analysts. Anyhow, just make sure to keep an eye on what the RBNZ has to say in its assessment next week, okay?
The Other Currencies
Here are the tables on how the other currencies fared this week:
The most noteworthy currency is the Loonie since it was the second-strongest currency of the week, and it’s strength was mostly due to higher oil prices this week, spurred by risk-on demand and improved demand outlook, thanks to upbeat data from China.
- U.S. crude oil up (CLG6) by 1.94% to $46.29 per barrel for the week
- Brent crude oil up (LCOH6) by 2.61% to $47.98 per barrel for the week
The BOC’s decision to keep rates steady also caused some relief buying, and the BOC’s lack of worry over the Brexit vote and overall neutral tone likely attracted genuine demand as well, causing the Loonie to decouple from oil, as Forex Gump pointed out in his write-up on the 6 Key Points from the July BOC Statement, and as you can see on the below chart that I, uh, “borrowed” from Forex Gump.
Moving on, another currency worth noting is the Aussie, since it didn’t share the same fate as the Kiwi. In fact, it was the third best-performing currency of the week after the pound and the Loonie.
Aussie and Kiwi pairs usually have very similar price action, as you can see in the highlighted area in the above chart. The Kiwi and the Aussie parted ways after the RBNZ announced its surprise economic assessment, though. Makes you wonder how the Kiwi would have fared if the RBNZ kept quiet, huh? Anyhow, the Aussie also benefited from the Kiwi’s misery, since AUD/NZD soared after the RBNZ’s surprise announcement, which make me wonder how both the Kiwi and the Aussie will react when the RBNZ does reveal the details of its economic assessment next week.
And here’s this week’s scorecard:
And based on last week’s poll, 7.55% of you were expecting that the pound would be this week’s main winner, so congratulations to you, assuming you didn’t change your mind during the course of the week. Aussie bulls are also probably a happy bunch, assuming you spread out your trades on various Aussie pairs or bought during the dip at the start of the week.
To the 33.96% of you who voted for the yen, I hope you were able to adjust your trading bias during the week. I also hope that the 24.53% of you who were betting on the Kiwi followed my advice and trailed your stops.
Do you think these market themes will continue to play out next week? Better keep them in mind when planning your trades for next week! And let others know which currency you think will be the King (or Queen, if you like) of pips next week by answering the poll below.