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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?

Top Forex Weekly Movers (Oct. 3-7, 2016)
Top Forex Weekly Movers (Oct. 3-7, 2016)

Well, there’s no doubt that the main theme this week was pound weakness, given that 7 of the top 10 movers are pound pairs, with the pound losing in each and every one. And it can’t be immediately gleaned from the table of Top 10 Movers, but Greenback strength was also actually a major theme. So, what was driving forex price action?

GBP

GBP/USD: 1-Hour Forex Chart
GBP/USD: 1-Hour Forex Chart
GBP Pairs Ranked (Oct. 3-7, 2016)
GBP Pairs Ranked (Oct. 3-7, 2016)

In last week’s Top Forex Market Movers of the week (sounds kinda redundant, huh?), I noted that pound pairs were mostly trading sideways. I therefore wrote that we’ll hopefully get some action from the pound this week. Well, the market gods must have heard my wish because, boy oh boy, did we get a lot of action.

I mean, just look at the chart above. I already squashed the chart by a lot so that you can see most of the price action, but you still can’t see the intraweek lows for GBP/USD. As I noted on the chart, you can only see 1.2040 as the lowest price for GBP/USD, when its intraweek low was 1.1484, although that may vary depending on the data feed from your broker.

Anyhow, the main talk of the forex town was, of course, the so-called “flash crash” on the pound on Friday. Nobody really knows for sure what triggered the flash crash, but Forex Gump has listed down some of the more credible theories that have been making the rounds, so read more about that here.

Interestingly enough, the pound was already the weakest currency of the week by Thursday, which is the day before the flash crash. The pound started the week by gapping lower against its peers, thanks to British PM Theresa May’s announcement on Sunday that her government would be invoking Article 50 of the TEU by March 2017 in order to formally start the process for an actual Brexit. It’s worth pointing out, though, that British Foreign Secretary Boris Johnson already spilled the beans back on September 23 when he said that negotiations for an actual Brexit would start “probably in the early part” of 2017, as I noted in my Top Forex Market Movers for September 19-23, 2016.

Still, the announcement from the PM herself was enough to renew Brexit jitters. And the Brexit-related fears were so strong that the better-than-expected PMI readings for manufacturing (55.4 vs. 52.1 expected, 53.4 previous), construction (52.3 vs. 49.1 expected, 49.2 previous), and services (52.6 vs. 52.1 expected, 52.9 previous) were not able to hold back the tide of sellers during the course of the week.

And as a coup de grâce, the poor pound got slammed very hard during the flash crash. Not that I’m complaining or anything. Yee-Haw!

USD

USD/JPY: 1-Hour Forex Chart
USD/JPY: 1-Hour Forex Chart
USD Pairs Ranked (Oct. 3-7, 2016)
USD Pairs Ranked (Oct. 3-7, 2016)

Aside from the pound, I was also hoping last week that the Greenback will give us some decent action. And while the Greenback’s price action was not as dramatic as that of the pound’s, it looks like the market gods also granted that wish, since the Greenback was this week’s top dog.

According to many market analysts, the Greenback’s strength was due to speculation that the NFP report would be good enough to continue fueling expectations of a December rate hike. And ISM’s better-than-expected manufacturing PMI reading (51.5 vs. 50.4 expected, 49.4 previous) was the catalyst that’s usually cited as one that started it all.

But if we look at the chart above, the Greenback was actually trading sideways on Monday and even had a mixed performance. It wasn’t until Tuesday’s Asian session rolled around that the Greenback started moving broadly higher.

There were no direct catalysts for the Greenback at the time, but about two hours before the Greenback started moving (and several hours after the ISM PMI report was released), Cleveland Fed President Loretta Mester was interviewed by Bloomberg. In that interview Mester said that the case for a rate hike during the November FOMC meeting “would remain compelling.” She also said that the November FOMC meeting should be considered “live” for a possible policy decision.

Whatever the case may be, whether it was Mester’s hawkish rhetoric or the PMI reading (or both), the Greenback apparently gained strength on the back of expectations that the NFP report would be supportive of a rate hike. And so the Greenback steadily climbed higher before becoming a bit more mixed on Friday, as the the NFP report began to loom over the horizon.

Unfortunately, the NFP report ended up being a disappointment since non-farm payrolls only increased by 156K, which is below the expected 170K increase. It’s not really that surprising, though, since seasonal adjustments tend to lower non-farm payrolls in September, as Forex Gump pointed out in his Forex Preview for the September NFP report.

Anyhow, Forex Gump also has a more in-depth review of the NFP report, so read it here, if you’re interested.

The gist of it, though, is that the NFP report was a miss, and hence, hopes for a November rate hike got crushed and the Greenback got dumped as a result. However, the 156K reading is still above the 100K needed to keep up with the working-age population. Moreover, Fed Governor Stanley Fischer, Cleveland Fed President Loretta Mester, and Kansas City Fed President Esther L. George conveniently had speeches after the NFP report, and they used that as an opportunity to essentially say that the 156K reading was still a good reading, which is likely why the probability for a December rate hike improved and the Greenback tried to rally after the initial drop.

Unfortunately for Greenback bulls, the Greenback was already top heavy since it got bought up during the course of the week, and so profit-taking likely stopped the rally before it could gain further momentum.

It sure would be interesting to see what the market thinks of the Greenback and the NFP report next week, huh? And all the more so since several Fed officials have scheduled speeches next week, including Fed Head Yellen herself. Maybe they’ll also use their speeches to talk about the NFP report and monetary policy? I sure hope so!

The Other Currencies

Okay, here’s how the other currencies fared this week:

EUR

EUR/USD: 1-Hour Forex Chart
EUR/USD: 1-Hour Forex Chart
EUR Pairs Ranked (Oct. 3-7, 2016)
EUR Pairs Ranked (Oct. 3-7, 2016)

The euro ended up as the second-strongest currency after the Greenback this week. And, as you can see on the chart above, there were two instances of strong, broad-based euro strength.

The euro actually started the week on a weak footing as risk appetite sent European equities higher. Fortunately for euro bulls, Bloomberg released  a report, which cited some unnamed “euro-zone central-bank officials.” According to these unnamed officials, the ECB was supposedly planning on winding down their asset purchases by €10 billions blocks every month, several months before their QE program will officially end.

This rumor caused the euro to spike higher against all its peers, and also allowed the euro to just shrug off the rally in European equities for a while, even though ECB Overlord Draghi said that the rumor was unfounded.

The euro then had a more mixed performance after that, before getting some broad-based demand again during Friday’s morning London session, thanks to the slide in European equities. Interestingly enough the NFP report actually caused the euro to strengthen further against its peers (except JPY and CHF), likely because European equities were pushed deeper into the red in the aftermath of the NFP report.

Also, most of the major European equity indices closed the week with losses.

  • The pan-European FTSEurofirst 300 (FTEU3) closed 0.88% lower to 1,338.76 for the week
  • The blue-chip Euro Stoxx (STOXX50E) closed 0.98% lower to 3,002.56 for the week
  • Germany’s DAX (GDAXI) closed 1.28% lower to 10,490.86 for the week

CHF

USD/CHF: 1-Hour Forex Chart
USD/CHF: 1-Hour Forex Chart
CHF Pairs Ranked (Oct. 3-7, 2016)
CHF Pairs Ranked (Oct. 3-7, 2016)

The Swissy was following close on the euro’s heels. And strangely enough, the main driver for the bulk of the Swissy’s gains this week appeared to be the rumor about ECB QE tapering.

NZD

NZD/USD: 1-Hour Forex Chart
NZD/USD: 1-Hour Forex Chart
NZD Pairs Ranked (Oct. 3-7, 2016)
NZD Pairs Ranked (Oct. 3-7, 2016)

The driver for the Kiwi’s weakness this week is really easy – it was very likely the 3.0% slump in the Global Dairy Trade (GDT) Index after Tuesday’s auction. The 3.0% drop is the worst reading since the February 2 dairy auction. In addition, the hard slump puts an end to four consecutive bi-monthly auctions of increasing dairy prices.

Oh, for the newbies out there, New Zealand’s economy is literally powered by milk (and Hobbits). Concentrated milk alone, for example, accounts for around 18.3% of New Zealand’s total exports. A drop in dairy prices is therefore bad for dairy farmers and New Zealand’s economy as a whole.

Next!

JPY

USD/JPY: 1-Hour Forex Chart
USD/JPY: 1-Hour Forex Chart
JPY Pairs Ranked (Oct. 3-7, 2016)
JPY Pairs Ranked (Oct. 3-7, 2016)

Depending on the data feed from your broker, the yen either just barely won out against the Kiwi or just barely lost to it. Needless to say, the yen was one of the worst-performing currencies this week.

Looking at the chart above, it’s pretty clear that the yen broadly weakened from Tuesday’s Asian session to Thursday’s U.S. session before broadly gaining strength during Friday’s Asian session.

So, what happened on Tuesday? Well, there was unfortunately no apparent major catalyst for the yen. There was some risk-taking back then, which would have dampened demand for the yen. There was also chatter about the possibility of using direct foreign bond-buying as one of the BOJ’s policy tools to weaken the yen. Also, some traders and analysts were pointing to Greenback strength.

And based on how price action went down, that last bit about Greenback strength seems like the most probable reason, given that the yen broadly yet steadily weakened as the Greenback steadily advanced. Basically, the relentless buying on USD/JPY also likely enticed forex traders to sell the yen in all the yen crosses.

In any case, yen bulls were finally able to return on Friday, thanks to risk aversion also returning ahead of the NFP report. In fact, the yen even actually benefited from the NFP report since the NFP report drove European and U.S. equities lower, which then likely spurred demand for the safe-haven yen.

CAD & AUD

AUD/USD: 1-Hour Forex Chart
AUD/USD: 1-Hour Forex Chart
USD/CAD: 1-Hour Forex Chart
USD/CAD: 1-Hour Forex Chart
AUD Pairs Ranked (Oct. 3-7, 2016)
AUD Pairs Ranked (Oct. 3-7, 2016)
CAD Pairs Ranked (Oct. 3-7, 2016)
CAD Pairs Ranked (Oct. 3-7, 2016)

These two currencies had a mixed performance this week, which means that they were vulnerable to opposing currency action.

An interesting thing worth pointing out is that price action on both currencies began to diverge on Tuesday, as you probably saw on the charts above. Incidentally, this divergence is the reason why the two currencies ended up having a mixed performance.

Another interesting thing worth pointing out is that forex traders reacted to the much higher-than-expected net increase in Canadian employment (+67.2K vs. 7.5K expected, 26.2K previous) by buying up the Loonie across the board, which is pretty normal. However, the Loonie was very quickly dumped after being bought up, which is pretty weird. I don’t see anything particularly wrong with the jobs report and while oil was beginning to weaken by then, it’s still kinda weird that the overall positive jobs report had very little sticking power.

Hmm. It’s just an educated guess on my part, but it is possible that the more sophisticated traders were already expecting an upside “surprise” and were therefore only keen to “pillage some quick pips from the Loonie,” as Forex Gump puts it in his Forex Preview for Canada’s jobs report. A couple of thing worth pointing out from Forex Gump’s preview is that seasonal adjustments tend to give net employment a boost and that economists tend to underestimate the seasonally-adjusted reading. Chance was therefore skewed in favor of an upside “surprise”. Such a “surprise” is not really that surprising when you have some idea on how seasonal adjustments mess around with the numbers, though. And the more sophisticated traders probably already knew about that. Which is probably why the Loonie got bought up on the “surprising” number, but was quickly dumped when oil began to falter. Again, this is just an educated guess on my part, so feel free to share your own thoughts.

Okay, here’s this week’s scorecard:

Scores (Oct. 3-7, 2016)

And here’s last week’s poll results:

Last Week's Poll

The 17.02% who voted for the U.S. dollar got it right. Although the 17.02% who voted for the euro and the 2.13% who voted for the Swissy would have also done well. The 8.51% who voted for the Aussie and even the 8.51% who voted for the Loonie would have also ended up with net profits, assuming you spread your trades around to include GBP/AUD and GBP/CAD respectively. Unfortunately, there were 6.38% who voted for the Kiwi, 21.28% who voted for the yen, and 19.15% who voted for the pound. Hopefully, you were able to punch out in time, especially those who voted for the pound, given the pound’s slide on renewed Brexit jitters before the flash crash.

Now that you know what the likely drivers were this week, and having taken a look at the forex calendar for next week, which currency do you think will come out on top next week? Vote in the poll below!