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?
The euro and franc were big winners in a busy but relatively quiet week, while the bulls were nowhere to be found to let the yen and Loonie slide across the board.
EUR & CHF
Nothing but love for the euro all week as the economic calendar was filled with positive surprises for the Euro area, including an improvement in Spanish CPI & unemployment rate (for the first time in six years hitting below 20%), German CPI & Import Prices, and most notably, a set of mostly better-than-expected European Purchasing Managers Survey data.
The main negative data seen were mostly from France, most notably its weaker-than-expected GDP read at 1.1% y/y vs. 1.2% forecast, 1.3% previous, but this (and Draghi’s dovish rhetoric on quantitative easing) wasn’t enough to take down the euro which basically did a slow grind higher all week long.
And it looks like the Swiss franc rode the euro’s coattails to gains against the majors this week, likely due to its large trading relationship with the European Union and its recent positive economic data lifting all boats.
We also got another positive uptick in the Kof Economic Barometer and the UBS Consumption Indicator, showing that conditions are improving and expect to improve in Switzerland.
This was enough to shake off comments from SNB Chairman Jordan that the franc is overvalued on Tuesday and commentary from SNB board member Fritz Zurbruegg that their balance sheet has no limit, both attempts to jawbone down the Swiss franc lower.
Out of Japan, forex traders got a slew of better-than-expected economic data (including trade balance data, unemployment rate, and PMI survey data), but unfortunately, inflation data is still the main focus for the BOJ and it comes in on the negative side and weakening.
This was capped off at the end of the week with a core CPI reading of 0.0% and a headline reading of -0.50% year-over-year.
This of course underscores that the Bank of Japan is not making many headwinds in its battle against deflation with its massive easy monetary policy, and likely the reason we saw the Japanese yen take “L’s” across the board this week.
With virtually no economic data to drive the Loonie in last week’s trade, it looks price action was all about central bank speak and of course, what’s happening with oil.
Probably the biggest driver to come out of Canada was mixed rhetoric coming from Bank of Canada Governor Stephen Poloz this week, speaking on both the need for and problems of monetary policy stimulus.
Among the confusion, it’s likely he was basically trying to say that while undesirable, they will ease if necessary, and the most notable comment during his appearance before the House of Commons that sent the market moving was that their “best plan right now, we think, is to wait for the next 18 months or so.”
This sent the Loonie rocketing higher early in the week, a move that unfortunately the bulls couldn’t hold as it looks like oil became the main driver for the currency over the remainder of the week.
Oil pulled lower, starting with Iraq wanting to pull out of the production cut agreement, and by Friday, there were signs that OPEC will not be able to agree on an oil production cut.
Light oil futures took a beating all week long to close down -4.31% to $48.66, likely dragging the Loonie along with it to losses against the rest of the majors.
Sterling ended up slightly lower across the board in what was mostly a quiet week of trade. The only real bit of action we saw came early as Sterling fell almost 1% ahead of Bank of England Governor Carney’s testimony at the House of Lords, defending the Bank’s QE program and providing thoughts on the Brexit situation.
The pound recovered quickly as he stated that the market may be mistaken “of where the supply potential of this economy will be in the immediate aftermath (of Brexit).”
Unfortunately, he couldn’t leave the week off on a positive note as his time with the Bank of England is coming to an end in 2018, and it’s likely he will not come back for another round. A change of leadership tends to bring on a round of uncertainty to future policy, so Carney’s decision is likely adding to Brexit uncertainty for market players.
We also got the preliminary read on the U.K.’s third-quarter GDP reading from the Office for National Statistics, coming in at a quarterly rate of 0.5% vs 0.3% forecast, but below the 0.7% previous read.
This provided a late-week boost to Sterling, but not enough to keep the trader’s focus away from the other more positive stories driving the other currencies higher.
It was a pretty heavy week of economic data for the U.S., highlighted by a dip in consumer confidence, better-than-expected housing, and Manufacturing PMI numbers, and most notably, the better-than-expected preliminary third-quarter GDP read of 2.9% vs. 2.6% forecast, 1.4% previous.
Overall, the data leaned more towards the positive end, supporting the broad rally in the Greenback in total, and we did get a spike higher in the Greenback early in the week, but I think that’s more on reaction to Sterling’s weakness.
Also supporting the U.S. dollar rally, we also got further evidence of Federal Reserve members’ support for interest rate hikes this week. We saw commentary from Chicago Fed President Evans saying that three quarter-point moves are likely by the end of 2017 and St. Louis Fed President Bullard said that a 25 basis point increase is necessary during their respective speeches this week, rhetoric that of course gives further fuel to buy up some Greenbacks.
And we did get a big surprise in price action at the end of the week, thanks to the FBI informing Congress that new emails were found in relation to U.S. Presidential Candidate Hillary Clinton’s email scandal investigation.
So far, it’s just a statement from the FBI to take another look at the investigation, but the markets freaked out a bit, sending the US Dollar Index lower to close the Friday session down -0.57% to 98.34 and the S&P 500 down -1.02% on the week at 2,126.41.
Economic data was all green for “the Lucky Country” with better-than-expected reads from their quarterly inflation data (y/y CPI rose to 1.3% vs. 1.0% previous) and export price data (3.5% actual vs. 1.4% previous). Import Prices looks to be the only drag as it came in at -1.0%, below the -0.8% forecast.
Overall, it was a “Go” for Aussie bulls to take the reigns as thoughts of an RBA rate cut faded on the inflation news, and possibly on Iron ore prices exploding higher in China (iron ore makes up around 29% of Australian exports and China is its largest trading partner). But the sentiment soon shifted as the Aussie topped out mid-week and reversed lower. What gives?
There doesn’t seem to be a direct catalyst from Australia for the turn, so it’s possible that traders shifted their focus to a rising Greenback U.S. data in the latter half of the week, and an argument can be made that the CPI data didn’t look as rosy initially thought as non-tradable inflation only rose by 0.5%, lower than the 1.7% in the same quarter last year. With core inflation lower, the certainty of “no rate cut” decreases, and its likely traders pared back their bullish Aussie sentiment.
The New Zealand dollar was a bit of a mystery this week as it was able to make gains against the majors (with the exception of the big winners in the euro & franc) on a relatively light calendar.
All we had to get the volatility party going for Kiwi traders was the weaker-than-expected trade balance data to show a deficit of NZD$1.436B, and a decline is actually pretty normal as we see exports dip during the winter months.
But overall, a widening of the trade deficit is not likely a call to Kiwi bulls to start pressing the buy buttons, so it’s quite possible the New Zealand dollar may still be riding high from last week’s positive CPI & Global Dairy price data.
This week’s scorecard: