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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

Looking at this week’s list of top 10 movers, we can see that half are pound pairs. Not only that, the top 3 losers are pound pairs. This week’s main theme therefore appears to be another week of pound bashing. And it isn’t very clear from the above list, but comdoll domination was also still a major theme. Although the Loonie did get left behind this week.

The Pound Sterling

GBP/USD: 1-Hour Forex Chart
GBP/USD: 1-Hour Forex Chart

GBP

After last week’s beat-down, the pound got another round of pounding this week. Heck, this week’s pound bashing was even more severe than last time.

And just like last week, the pound’s weakness is still linked to Brexit-related jitters. However, this week’s pound bashing actually began on Sunday, before the markets even opened. You see, British PM Theresa May gave an interview on Sunday. And to make a long story short, her interview was taken to mean as a sign that a so-called “hard” Brexit is inevitable when she emphasized regaining border controls. Although May did admittedly say that she would do her best to get a good deal that would benefit both the U.K. and the E.U. when she said the following:

“We are leaving, we are coming out, we are not going to be a member of the E.U. any longer. We will have control of our borders, control of our laws, but we still want the best possible deal for U.K. companies to trade with and operate within the European Union and also European companies to trade with and operate within the U.K.“

Anyhow, the market was apparently more focused on May’s hard stance on regaining border controls, which is at odds with the E.U.’s demands that there should be freedom of movement of people. This then stoked fears of a “hard” Brexit. And as a result, poud pairs started the week by gapping lower on Monday and then steadily sliding lower for the rest of the day.

After that, the pound steadied on Tuesday, likely because of profit-taking by the shorts and because of positive news like Foreign Secretary Boris Johnson’s announcement that the U.K. will be “first in line to do a great free trade deal with the United States” under a Trump administration. There was also a report that a group called Single Market Justice is planning to mount a legal challenge against leaving the E.U. single market. And this group took the first step by asking for a judicial review on January 19, which likely eased Brexit-related jitters a bit. You can read more about these developments in Forex Gump’s write-up here.

Anyhow, Brexit-related jitters persisted, so pairs pairs resumed their slide on Wednesday. GBP/USD was an exception, though. But that’s another story that we’ll be discussing when we get to the Greenback.

The pound then got another beating during Thursday’s U.S. session, thanks to reports that Theresa May will be discussing her Brexit plans next Tuesday. That also means that volatility hunters may wanna keep an eye on the pound next week. And as I mentioned earlier, the Single Market Justice group asked for a judicial review on January 19. Moreover, the U.K. supreme court is expected to decide sometime next week on the government’s authority to start the Brexit process without Parliament’s say. Looks like next week is gonna be another interesting week for the pound, huh?

The Australian Dollar

AUD/USD: 1-Hour Forex Chart
AUD/USD: 1-Hour Forex Chart

AUD

Last week, the Aussie was only the second strongest currency of the week. This week, however, the Aussie dethroned the Loonie to become the one currency to rule them all.

And also like last week, demand for the Aussie was underpinned by another broad-based commodities rally.

Bloomberg's Commodities Index
Bloomberg’s Commodity Index

This week’s commodities rally actually had a mixed start, with oil down, precious metals up, and base metals mixed. However, iron ore, Australia’s major commodity export, was in the green for the day, allowing the Aussie to start the week on a strong footing.

After that, it was smooth sailing for the Aussie as reports that were released and events that played out during the week continued to fuel demand for commodities, particularly base metals. Noteworthy among these was China’s PPI reading (5.5% vs. 4.6% expected, 3.3% previous), which was being cited by market analysts as the reason for the strong demand for base metals on Tuesday. Other than that, we also had persistent Greenback weakness during the week, which made globally-traded commodities that are priced in U.S. dollars, relatively cheaper.


The Other Currencies

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


The U.S. Dollar

USD/JPY: 1-Hour Forex Chart
USD/JPY: 1-Hour Forex Chart

USD

The Greenback had a bad run this week. And as highlighted on the chart above, the Greenback got kicked lower on two different occasions.

The first occasion happened on Monday. And that was due to the slump in U.S. bond yields, thanks to safe-haven demand for bonds, which was attributed to Brexit-related jitters and worries related to the Chinese yuan.

The second round of dollar dumping, meanwhile, was due to this guy’s presser.

The Donald

To be more accurate, though, it wasn’t what Trump said during the presser, but what he didn’t say. You see, the market was expecting that Trump would use the presser to give a pro-growth message while revealing some of the details of his economic stimulus plan. Instead, Trump talked about the Great Wall of Trump, how awesome his cabinet picks are, and how his meetings with U.S. intelligence officials get leaked. Trump also slammed “fake news” media outlets among other things. Basically, Trump talked about a lot of things except what the market wanted to hear. And as a result, the Greenback bled out.

The bleeding finally stopped during Thursday’s U.S. session recap, thanks to relatively hawkish speeches from Fed officials, including Fed Head Yellen herself. Still, the damage was already done, and so the Greenback ended up as one of the main losers this week.

By the way, Forex Gump has a summary of what Fed officials had to say recently, so check out his write-up here, if you’re interested.

The New Zealand Dollar

NZD/USD: 1-Hour Forex Chart
NZD/USD: 1-Hour Forex Chart

NZD

The broad-based commodities rally that spurred demand for the Aussie was very likely in play for the Kiwi as well. After all, both the Kiwi and the Aussie are comdolls.

Other than that, U.S. dollar dynamics were apparently in play. Oh, for the newbies out there and for those of you who can no longer remember, I mentioned the following four points back in December.

  • The trade turnover on the Kiwi is roughly around U.S. $105 billion per day
  • Most of the trades occur offshore with NZD/USD in focus, according to RBNZ Guv’nah Wheeler himself during the August RBNZ presser
  • According to the November RBNZ statement and presser, the RBNZ expects the Kiwi to weaken, “reflecting an improvement in global economic conditions and a narrowing of interest rate differentials between New Zealand and other advanced economies.”
  • This “narrowing of interest rate differentials“ mostly means a Fed rate hike, with the rationale being that a December rate hike (and additional rate hikes) would pull investors away from New Zealand while enticing more investors to go to the U.S., causing NZD/USD to tank, which would then pull down the other Kiwi pairs.

Back then, I noted that these are the reasons why the Kiwi tanked after the Fed hiked rates in December, even though the December rate hike triggered a frenzy of risk-taking. Anyhow, the main takeaway here is that the Kiwi has become sort of an anti-dollar, weakening when the Greenback gains strength and advancing when the Greenback retreats.

And we can see this in play this week. Monday is a good example because commodities were mixed on Monday. In addition, risk aversion was also the prevailing risk sentiment on Monday. And yet the Kiwi gained strength. Now recall our earlier discussion that the Greenback was on the back foot at the time because of the plunge in U.S. bond yields.

We can also see U.S. dollar dynamics in play yet again on Tuesday. As implied in my recap for the Aussie, the broad-based commodities rally actually started on Tuesday. But as you saw on the chart above, the Kiwi actually performed poorly on that day. Now look at the earlier chart for the Greenback, and you’ll see that Greenback pairs either stabilized or got bid up, thanks to the recovery in U.S. bond yields on Tuesday.

As for the remaining days, it harder to tell if U.S. dollar dynamics or the commodities rally was the main driver for the Kiwi’s price action. Might as well point to both, right?

The Japanese Yen

USD/JPY: 1-Hour Forex Chart
USD/JPY: 1-Hour Forex Chart

JPY

The yen has also become sort of an anti-dollar, although it’s price action is more directly linked to the ebb and flow of U.S. bond yields. Anyway, the yen performed rather well this week, coming in third place after the Aussie and the Kiwi (boo hoo hoo).

Again, the yen’s price action has been linked to U.S. bonds yields recently, so the yen gained strength when U.S. bond yields slumped on Monday. The yen then eased a bit when U.S. bond yields steadied and recovered a bit on Tuesday. However, the yen got a major bullish injection on Wednesday and Thursday, when bond yields slumped hard very hard, thanks to Trump’s presser and very strong demand during the bond auction held on Thursday.  Finally, the yen traded sideways on Friday, when U.S. bond yields flattened out on Friday.

The Euro

EUR/USD: 1-Hour Forex Chart
EUR/USD: 1-Hour Forex Chart

EUR

Looking at the euro’s chart and mixed performance, we can probably safely say that the price action on euro pairs was dominated more by opposing currency price action.

But as marked on the chart above, the euro did exhibit some uniform price action on Tuesday and Wednesday. And that appears to be linked to risk sentiment. To be more specific, the euro’s price action on those dates appear to be inversely linked to the prevailing risk sentiment during European session. And as I mentioned in the London session recaps for Tuesday and Wednesday, risk-taking was the name of the game back then.

There were important euro-related reports and events during the week, but they only had minimal sticking power.

As for specifics, the minutes for the December ECB meeting got released and it revealed that a “few members could not support” the QE extension proposals presented, “while welcoming the scaling-down of purchases and other elements of the proposals.” According to the minutes, headline inflation is also expected “to rise significantly in the coming months” while continued “moderate” growth is expected.

However, the ECB warned that “a number of further shocks could materialise in the future.” In addition, “political uncertainty remained high.” Moreover, risks to the growth outlook are “judged to remain tilted to the downside, though some members assessed the balance of risks to be more positive.”

Another important event for the euro was BOE Guv’nah Mark Carney’s testimony before the Treasury Committee. In his testimony, Carney said that the following:

“I am not saying there are no financial stability risks in the U.K., and there are no economic risks to the U.K., but there are greater short term risks on the continent in the transition than there are in the U.K.”

This is within the context of a so-called “hard” Brexit, and Carney was simply saying that the Euro Zone has more to lose than the U.K., at least in the short-term. Again, this didn’t really have a lot of impact on the euro’s price action, though.

Oh, make sure to keep an eye on the euro, since we’ve got the ECB statement next week.

The Swiss Franc

USD/CHF: 1-Hour Forex Chart
USD/CHF: 1-Hour Forex Chart

CHF

If the euro appeared to be vulnerable to opposing currency price action, then the Swissy is REALLY vulnerable to opposing currency price action. And like the euro, the Swissy also showed uniform signs of weakness during Tuesday and Wednesday.

The Canadian Dollar

USD/CAD: 1-Hour Forex Chart
USD/CAD: 1-Hour Forex Chart

CAD

Oil benchmarks got pummeled this week, thanks mainly to doubts over OPEC’s oil cut deal, market analyst say.

  • U.S. crude oil (CLG6) down by 2.67% to $52.55 per barrel for the week
  • Brent crude oil (LCOH6) down by 2.64% to $55.59 per barrel for the week

However, the Loonie’s performance was mixed and many Loonie pairs refused to track oil this week, as you can see on the chart above. This implies that the Loonie was also vulnerable to opposing currency price action. And this is made abundantly clear when you look at how CAD/CHF and EUR/CHF fared this week (they practically went nowhere).

There’s no clear reason for the lack of interest on the Loonie this week, although you may wanna keep an eye on the Loonie next week, given that we have the BOC statement coming up.

Okay, here’s this week’s scorecard:

This Week's Scorecard

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!