The forex trading week has come and gone.
Time to take a look at what was driving forex price action.
Were you able to profit from any of this week’s top movers?
Half of the top 10 movers are pound pairs, with the pound winning out, so pound strength was the main theme this week. Other than that, we’ve got Greenback demand as another major theme. So, what was driving forex price action this week?
The pound was clearly the one currency to rule them all this week. And as I highlighted on the chart above, the bulk of the pound’s gains were captured when pound pairs broadly trended higher from Monday to Wednesday.
There were no catalysts on Monday and there were only low-tier items for Tuesday and Wednesday, so the pound’s broad-based rally was likely an extension of last week’s price action.
If y’all can still recall last week’s Top Forex Market Movers, I noted that the pound was one of the stronger currencies back then. And I attributed the pound’s strength to easing Brexit jitters, thanks to positive post-referendum economic reports, namely the better-than-expected readings for July CPI and July retail sales.
Pound pairs later got mauled by the bears starting on Thursday’s Asian session before trading mostly sideways on Friday. Again, there were no major catalysts that could have enticed pound bears to come out of the woods. The dip was therefore likely due to profit-taking after three days of broad-based gains.
Interestingly enough, pound pairs (except GBP/USD, of course) got a bullish boost when Yellen gave her little speech. There’s no clear explanation for that, though, and other analysts seem to be ignoring that wonky yet interesting price action.
The Greenback was the second best-performing currency of the week. But if you look at the chart above, you’ll see that most Greenback pairs were mixed but roughly trading sideways before getting a major bullish boost on Friday, thanks to Fed Chair Yellen’s Jackson Hole Speech.
Forex Gump has a write-up on the main takeaways for that speech, so read that here, if you want the details. The key statement from that 22-page speech, however, is likely this:
“Indeed, in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”
Yellen’s tone was very hawkish overall, so Greenback bulls began to jump in. But as Forex Gump pointed out in his write-up, Greenback bears also initially tried to join the fray, likely because Yellen added some caveats to her hawkish statement and she didn’t really hint at a likely date for a rate hike,
Thankfully (for the bulls), Fed Vice Chairman Stanley Fischer later came to save the day when he answered “yes” to questions regarding the possibility of a September rate hike, as well as the possibility of two rate hikes within the year, forcing Greenback bears to scurry off back into the woods.
Just make sure to keep an eye on the Greenback next week, okay? We’ve got another NFP Friday coming up, and that may either cement rate hike expectations or crush it. Either way, chances are good that we’ll be getting some decent volatility from Greenback pairs.
CHF & EUR
The euro and Swissy were the main winners last week, but they had a reversal of fortunes and ended up being the main losers this week (together with the yen). The major global equity indices had a mixed performance this week, but European equity indices were mostly in the green.
- FTSEurofirst 300 (FTEU3) closed 0.96% higher to 1,352.73 for the week
- Euro Stoxx (STOXX50E) closed 1.51% higher to 3,012.97 for the week
- DAX (GDAXI) closed 0.42% higher to 10,587.77 for the week
And like last week, the euro and the Swissy were apparently being influenced more by European markets, as I’ll show below. Oh, note that the red boxes below highlight price action during the London session.
Having said that, I noted in Monday’s London session recap that Europe was starting the week with some risk aversion. And as you can see above, the euro was getting some buyers back then.
The euro’s luck ran out on Tuesday, though, since risk appetite made a comeback in Europe, as I observed in Tuesday’s London session recap. And as stated in Wednesday’s London session recap, risk-taking resumed after a quick bout of risk aversion, so the euro got whupped some more. Incidentally, Wednesday was when the euro suffered the largest broad-based loss, as you can see on the chart above.
Getting back on topic, I jotted down in Thursday’s London session recap that risk aversion finally showed signs of returning, and so the euro got some buyers again.
And while I noted in Friday’s London session recap that European equity indices were modestly in the red ahead of Yellen’s Jackson Hole speech, her speech actually caused European equity indices to erase their losses and then some. As a result, the euro got clobbered.
- FTSEurofirst 300 (FTEU3) closed 0.54% higher to 1,352.73 on Friday
- Euro Stoxx (STOXX50E) closed 0.85% higher to 3,012.97 on Friday
- DAX (GDAXI) closed 0.55% higher to 10,587.77 on Friday
Now that we’re done with the euro, let’s discuss the Swissy. The Swissy’s price action was similar to the euro in that risk sentiment during the European session had a big impact on the Swissy’s price action.
Still, the Swissy did lose out to the euro, so let’s find out why. Perhaps EUR/CHF’s price action can give us some clues?
Looking at the chart above, we can see that EUR/CHF got a bullish boost when the London session opened. The pair then proceeded to grudgingly trend higher, which means that the Swissy was losing out to the euro. What’s up with that? There was nothing on the docket for both currencies. However, the SNB did release its weekly monetary policy data.
The most interesting item in that report was the increase in sight deposits of domestic Swiss banks from CHF 434,742 million to CHF 436,095 million during the week ending on August 19. The increase implies that the SNB likely tried to intervene in the forex market last week (*cough* currency manipulator *cough*).
However, as we discussed in last week’s Top Forex Market Movers of the Week, the Swissy was actually the best-performing currency back then. This means that if the SNB did try to intervene last week, it still ultimately failed. Hah! Take that Thomas Jordan!
Anyhow, this evidence of probable SNB intervention likely spooked Swissy bulls or encouraged them to take some delicious profits off the table since the Swissy actually broadly weakened on Monday. And remember, risk aversion was the dominant sentiment, which should have spurred demand for the safe-haven Swissy.
Moving on, EUR/CHF proceeded to trade sideways on Tuesday and Wednesday, ending up about flat on both European sessions, so nothing really interesting there. Price action on Thursday was pretty interesting, though, since the euro advanced at the expense of the Swissy. And Friday was a repeat performance since the Swissy gave way to the euro once more.
There was some risk aversion on Thursday, which should have sent some safe-haven flows towards the Swissy. Also, there were no major news or economic reports for the Swissy.
However, the Swissy still lost out to the euro and had a mixed performance against its other rivals. Something doesn’t add up. Maybe the SNB was intervening again? I guess we’ll get some clues when the SNB releases another weekly monetary policy data report on Monday.
Most yen pairs started the week with a handicap, thanks to gaps caused by BOJ Shogun Kuroda’s weekend remarks. To be more specific Kuroda said that there’s a “sufficient chance” of further easing moves, which apparently includes an even deeper cut into the BOJ’s negative rates.
Luckily for the yen, there was some risk aversion at the start of the week, so most gaps were closed on Monday, except for the runaway gap on GBP/JPY. The yen’s price action became a total mess after that, as you can see on the charts below. This thereby implies that the price action on most yen pairs was likely being influenced by opposing currency price action.
Strangely enough, yen pairs suffered broadly when Yellen gave her Jackson Hole speech, which is the reverse effect as the one I noted on the pound earlier. Once again, most market analysts aren’t really pointing out this wonky price action, though.
The Kiwi had a good run during the trading week and was even winning out against the Greenback until Yellen’s speech wiped out the Kiwi’s gains against the Greenback. Still, the Kiwi managed to hold onto most of its gains, so it ended up as the third best-performing currency after the pound and the Greenback.
The Kiwi initially dipped on Monday but quickly recovered despite the prevalence of risk aversion. It then rose further after a speech written by RBNZ Guv’nah Graeme Wheeler was released.
The most important parts of that speech are as follows:
“With the economy currently growing at around 2½ – 3 percent and with annual growth projected to increase to around 3½ percent, rapid and ongoing decreases in interest rates would likely result in an unsustainable surge in growth, capacity bottlenecks, and further inflame an already seriously overheating property market. It would use up much of the Bank’s capacity to respond to the likely boom/bust situation that would follow and would place the Reserve Bank in a situation similar to many other central banks of having limited room to respond to future economic or financial shocks. Such consequences suggest that a strategy of rapid policy easing to extremely low rates would be counter to the provisions in the PTA that require the Bank to ‘seek to avoid unnecessary instability in output, interest rates and the exchange rate’ and to ‘have regard to the soundness of the financial system.’”
That speech basically said that cutting rates too soon and too often is gonna be bad for New Zealand, which naturally reduces further rate cut expectations from the RBNZ. And this speech, together with the search for higher yield, likely sustained the Kiwi’s steady rise during the week.
Aussie pairs had similar price action to Kiwi pairs but were noticeably more subdued and somewhat more vulnerable to opposing currency price action, which is why the Aussie had a mixed performance for the week.
Like the Kiwi, the search for higher yield was likely supporting the Aussie. However, last week’s dovish RBA meeting minutes and credit downgrade warnings from Moody’s, as well as the slide in iron prices this week, made the Aussie less attractive, dampening demand.
The Loonie had a mixed performance for the week. It still ended up a net loser, though, likely because lower oil prices were weighing down on most Loonie pairs.
- U.S. crude oil down (CLG6) by 2.45% to $47.33 per barrel for the week
- Brent crude oil down (LCOH6) by 2.34% to $49.69 per barrel for the week
Oil benchmarks suffered most of their losses on Monday due to “worries about burgeoning Chinese fuel exports, more Iraqi and Nigerian crude shipments and a rising U.S. oil rig count,“ as a report from Reuters puts it. Although it’s also possible that we’re just seeing a correction after three consecutive weeks of rallying oil prices.
Okay, here’s this week’s scorecard: