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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 (Jan 30 - Feb 3, 2017)

As you can see on the list of top movers, half of the top 10 movers were yen pairs, with the yen showing strength in all of ’em. Other than that, 4 out of the top 10 movers are pound pairs, with the pound on the receiving end of a beat-down. The yen and the pound therefore had a reversal of fortunes this week. And as you’ll see later, the yen ended up being the one currency to rule them all while the pound ended up at the very bottom. What happened? And how did the other currencies fare? Time to find out!

The Pound Sterling

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

GBP

After dominating its forex rival for a couple of weeks, the pound finally got overthrown this week. Heck, the pound was not only dethroned – it got thrown to the very bottom. Oh, how the mighty have fallen!

I noted last week that post-GDP profit-taking and worries about the Brexit Bill sent the pound reeling. Well, those themes apparently continued to play out on Monday, as the pound extended its losses without any major catalyst.

The pound got a final bearish kick after the BOE’s Money and Credit report revealed that net lending to individuals only increased by £4.8 billion in December, missing expectations that it would further accelerate from November’s  £5.1 billion to £5.3 billion. More importantly, this is the smallest increase since May 2015 and puts an end to five months of ever better readings, thereby hinting that consumer spending may also ease.

After that, the pound rapidly recovered. There was no apparent catalyst and market analysts couldn’t pinpoint the exact reason for the recovery. However, the recovery appeared to be Brexit-related since the recovery occurred during and after the first day of debates on the Brexit Bill with signs that the vast majority of MPs will supports the Brexit Bill. Also, the pound started getting bid higher after The Guardian released an article that cited unnamed sources (i.e. a rumor) claiming that British PM Theresa May would be releasing a white paper detailing her Brexit plans on Thursday, which would certainly help ease Brexit-related uncertainty. Most other media outlets would only pick up The Guardian article about 2-3 hours later, which also happens to be when the pound’s recovery got into higher gear.

Another sign that the pound’s intraweek rally was likely triggered by The Guardian’s article is the fact that the pound’s rally quickly ran out of steam on Wednesday when Theresa May officially announced that she will be releasing her Brexit white paper on Thursday, confirming the earlier rumor. After that, pound pairs (other than GBP/USD) began sliding lower, so a classic “buy the rumor, sell the news” scenario apparently happened. Also, British MPs would later vote 498 to 114 overwhelmingly in favor of the Brexit Bill. The vote is more of a mixed event for the pound, because it reduces Brexit-related uncertainty on the one hand, but on the other hand, it does bring the U.K. one step closer to an actual Brexit. By the way, Theresa May did indeed release her 77-page Brexit white paper, but that was released shortly after the BOE statement, so it got kinda shoved in the background.

Speaking of the BOE statement, that one event erased the pound’s intraweek recovery (and then some). I already listed down the key points during Thursday’s London session recap and Forex Gump also has a write-up on that, which you can read here.

The gist of it all, though, is that the BOE upgraded its growth projections while revising its forecasts to show that the labor market would not deteriorate as badly as originally estimated. Despite the upbeat outlook on the economy, however, the BOE retained its neutral bias when it reiterated that:

“Monetary policy could respond, in either direction, to changes to the economic outlook as they unfolded to ensure a sustainable return of inflation to the 2% target.”

This heavily implies that the BOE is in no hurry to hike or at least switch to a hiking bias. And this was a total letdown for market players who were expecting a more hawkish tune from the BOE. And as a result, the pound got dumped. After that, the pound got a final (but weak) bearish kick on Friday, thanks to the drop in the U.K.’s services PMI reading.

To summarize, the pound got a good ol’ fashioned beat-down because last week’s final bearish themes continued to play out at the start of the week and because the BOE’s lack of hawkishness was a disappointment. Although poor economic reports also played a minor role in pulling the pound lower.

The Japanese Yen

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

JPY

The Japanese yen dethroned the once mighty pound to emerge as the one currency to rule them all, which is a real disappointment (well, for me it is, boo hoo).

As usual, yen pairs were mainly tracking bond yields, particularly U.S. bonds yields, as you can see in the chart below. And if you wanna know why, I already discussed it in last week’s write-up, so go ahead and read it here.

USD/JPY vs. U.S. 10-Year Bond Yields
USD/JPY vs. U.S. 10-Year Bond Yields

Yen pairs and bond yields very noticeably decoupled on Monday, though, since bond yields were steady but the yen just plowed through its forex rivals. There was no direct catalyst, but the yen’s appreciation was probably due to profit-taking by yen shorts ahead of the BOJ statement and after two straight weeks of broad-based yen weakness.

Speaking of the BOJ statement, it was a dud since the BOJ maintained its current monetary policy and didn’t really say or do anything that’s new or unexpected, unless you count BOJ Shogun Kuroda’s implied jabs at Trump’s protectionist policy as new or unexpected. BOJ officials did upgrade their growth forecasts, though. Projections for CPI, meanwhile, were essentially unchanged.

BOJ Outlook
BOJ Outlook

The Other Currencies

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

The Australian Dollar

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

AUD

The Aussie finally regained some poise after getting whupped last week. Heck it even ended up as the second strongest currency of the week.

But as you saw in the chart above, the Aussie actually had a rather poor start. And that was apparently due to the higher-yielding Aussie getting slapped around by the risk-off vibes at the time. The Aussie finally found some support when risk appetite returned during Wednesday’s morning London session.

Risk aversion then made a comeback on Thursday, but luckily for Aussie bulls, Australia’s December trade report was released, and it was awesome. To begin with, Australia’s trade surplus ballooned to $3.51 billion. That’s pretty awesome by itself, but if you put the reading in context it becomes even more awesome.

You see, December’s surplus marks the second consecutive month of surpluses after 30 or so straight months of deficits. Even better, the reading for December is the higher ever on record since comparable records began in 1971. And did I mention that November’s reading was also upgraded from $1.24 billion to $2.04 billion?

The details were also pretty awesome, since the surplus was not due to imports contracting, given that imports actually increased by 1% to a one-year high of $29.12 billion. Rather, the surplus was due to exports surging by 5% to a record high of $32.63 billion. Awesome!

By the way, you may wanna keep an eye on the Aussie, since the RBA monetary policy statement is coming up next week.

The U.S. Dollar

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

USD

The Greenback was the second weakest currency of the week. And as you can see in the chart above, the Greenback showed weakness right from the get-go. Most analysts blamed this on Trump’s actions over the weekend, such as his temporary immigration ban on some Muslim countries, which analysts say are net negative for the Greenback. Although it’s also possible that Monday’s weakness was a bearish extension after the Greenback encountered sellers last Friday, thanks to the poor Q4 GDP report.

The Greenback’s weakness only worsened during Tuesday’s morning London session. And as I noted in my session recap, that was due to The Financial Times releasing an article about an interview with Peter Navarro, the top dog of Trump’s National Trade Council, wherein Navarro was quotes as saying the following:

“Germany is using a ‘grossly undervalued’ euro to ‘exploit’ the US and its EU partners.”

Navarro was clearly criticizing Germany, but this was taken by market players and market analysts as a sign that the Trump administration views a strong dollar as being undesirable. And it didn’t help (dollar bulls) that The Donald himself said the following later during the day:

“You look at what China’s doing, you look at what Japan has done over the years. They — they play the money market, they play the devaluation market and we sit there like a bunch of dummies.”

Moving on, the Greenback recovered after that, likely because of short covering ahead of the FOMC statement. The recovery was short-lived, however, because the Greenback resumed its slide in the wake of the FOMC statement. Forex Gump already has a detailed write-up on the FOMC statement, so read it here, if you’re interested. The short of it, though, is that the official press statement had not-so-hawkish undertones with regard to inflation. In addition, the Fed failed to give any forward guidance on when we can expect the next rate hike. And these two eroded rate hike expectations, which also quite naturally eroded support for the Greenback.

The Greenback then bottomed out again ahead of the NFP report. And when the NFP report was finally released, forex traders initially tried to buy up the Greenback on the better-than-expected reading (227K vs. 175K expected). However, when they looked at wages and other details of the NFP report, it became clear that the report wasn’t really that great overall. And as a result, rate hike expectations took another hit, which also sent the Greenback reeling after the initial knee-jerk reaction. Oh, Forex Gump also has a detailed review of the NFP report, and you can read that here. And as Forex Gump also noted in his review, San Francisco Fed President John Williams was later interviewed by Bloomberg. And in that interview Williams said that:

“From a risk management point of view, there’s an argument to move sooner, rather than wait.”

This was taken as a hint that the March FOMC meeting should still be considered as “live” for a rate hike, which allowed the Greenback to recover. That’s kinda weird, though, since Williams is not a voting FOMC member this year, so his words don’t really have a lot of weight since he can’t really act on them.

Anyhow, on to the next currency!

The New Zealand Dollar

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

NZD

The Kiwi was the second strongest currency of the week last week, but it had a more mixed performance this week, ending up as a net loser overall.

The Kiwi actually had a very promising run from Monday to Tuesday, despite risk aversion being the dominant sentiment at the time, as I mentioned when we discussed the Aussie earlier. And a trading environment where risk aversion is prevalent is not exactly where higher-yielding currencies like the Kiwi normally thrive.

But as I have been noting since November, however, the Kiwi has been acting kinda like an anti-dollar. And U.S. dollar dynamics were almost certainly  in play once more since the Greenback was reeling at the time.

Unfortunately for Kiwi bulls, the Kiwi got double teamed by the Greenback’s recovery and New Zealand’s disappointing jobs report. The jobs report is released on a quarterly basis, so it does have some extra heft to it. Although it must be said that the jobs report was actually mixed, since the jobless rate jumped from 4.9% to 5.2%, ending two straight months of improving readings. However, the labor force participation rate also climbed to an all time high of 70.5%, which is good news. Still, the number of jobless people climbed from 128K to 139K, so New Zealand’s economy wasn’t able to accommodate all the people who decided to join or re-join the labor force.

By the way, make sure to also keep an eye on the Kiwi, since the RBNZ statement is scheduled for next week.

The Canadian Dollar

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

CAD

The Loonie was the third best-performing currency of the week yet again. And oil benchmarks were in the green, as you can see below.

  • U.S. crude oil (CLG6) up by 1.66% to $53.86 per barrel for the week
  • Brent crude oil (LCOH6) up by 2.43% to $56.80 per barrel for the week

However, Loonie pairs weren’t really tracking oil prices all that much, as you probably saw in the chart earlier. In fact, the Loonie’s price action was pretty messy, which indicates that opposing currencies were dictating price action on Loonie pairs. No clear reason for this, however. Although it’s possible that market players were wary of positioning heavily on the Loonie, given that there were no major developments related the to Keystone XL pipeline project or the U.S.-Canada trade relationship this week.

The Euro

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

EUR

As usual, the euro’s price action was a complete mess, with many euro pairs trading roughly sideways for the week. There was a broad-based euro rally on Tuesday, thanks to Trump Trade Adviser Peter Navarro’s criticism of Germany supposedly exploiting the weak euro to gain an “unfair” advantage in trade, which we already discussed when we talked about the Greenback. However, that apparently had very little sticking power since the euro’s price action became a total mess after that. There were also a ton of mid-tier and low-tier economic reports for the Euro Zone and its major economies, but as usual, none of them really had any meaningful effect on the euro’s price action.

The Swiss Franc

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

CHF

Also as usual, the Swissy’s price action was as messy as that of the euro’s. However, the Swissy did show some uniform price action on Monday and Tuesday.

The Swissy first got dumped across the board on Monday, despite the risk-off vibes back then. There was no clear catalyst, but as I noted in Monday’s morning London session recap, that was probably due to a Reuters report about Switzerland’s tax break on international companies coming to an end, which could affect around 24,000 multinational companies. The Swiss cantons are expected to have a referendum on it, but if the planned reforms are implemented or the tax break is scrapped altogether, then that may convince some of those 24,000 companies to pack up and leave Switzerland, or at least limit further investments or scale down their operations, which is obviously gonna be bad for the Swiss economy.

Anyhow, all became right again after the initial dump since the safe-haven Swissy gained strength until Tuesday, as risk aversion persisted. The Swissy then got slapped lower when risk appetite came back on Wednesday. And after that, things became “normal” again since price action on the Swissy became a total mess.

Okay, here’s this week’s scorecard:

Scorecard

Okay, 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!