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 mighty pound crushed all opposition this week, with the Loonie getting the worst of it. Almost everybody already knows why the pound ended up as the one currency to rule them all, but why was the Loonie so weak? And how did the other currencies fare this week, by the way? Time to find out!
The Pound Sterling
The pound had another good run this week. Unlike last week, however, the pound’s victory this week was completely crushing.
Everybody probably already knows why the pound was this week’s top dog. But for those who still don’t know for some reason, the catalyst was Theresa May’s surprise call for early elections.
As to why the pound reacted very positively to the call for early elections, it’s because Theresa May’s Conservative Party has a substantial lead in the polls and Theresa May, herself, is viewed in a mostly positive light.
As such, there’s a good chance that the Conservatives will win more seats in the general elections, which are scheduled for June 8. And more seats in Parliament means that resistance from opposition parties would be weaker and a stronger negotiating position for Theresa May’s government, which means less uncertainty.
“Every vote for the Conservatives will make it harder for opposition politicians who want to stop me from getting the job done.”
“Every vote for the Conservatives will make me stronger when I negotiate for Britain with the prime ministers, presidents and chancellors of the European Union.”
“Every vote for the Conservatives means we can stick to our plan for a stronger Britain and take the right long-term decisions for a more secure future.”
“So, tomorrow, let the House of Commons vote for an election, let everybody put forward their proposals for Brexit and their programmes for government, and let us remove the risk of uncertainty and instability and continue to give the country the strong and stable leadership it demands.”
After surging higher on this positive development, the pound spent the rest of the week trading roughly sideways.
By the way, MPs did vote in favor of having early elections, but pound bulls apparently used that event as an opportunity take some profits off the table rather than add to their longs, since the pound dipped a bit before continuing to trade roughly sideways.
Meanwhile, the U.K.’s March retail sales report was a yuuuge miss, and will likely even be a drag on Q1 2017 GDP growth, since retail sales volume fell by 1.4% quarter-on-quarter. The pound dipped on this disappointing news, but there was little follow-through selling and the pound continued to trade sideways until the trading week ended.
The Canadian Dollar
The Loonie got its butt kicked this week, very likely because oil also got the stuffing beaten out of it this week.
- U.S. crude oil down (CLG6) by 6.71% to $49.61 per barrel for the week
- Brent crude oil down (LCOH6) by 7.05% to $51.95 per barrel for the week
Market analysts blamed oil’s rather hard slump this week to growing worries that the oil glut is here to stay, thanks to rising U.S. oil output, as well as expectations that U.S. shale oil production will print the largest monthly increase in two years come May.
Aside from oil’s weakness, it’s also likely that worries over a potential housing bubble soured sentiment on the Loonie. This can be seen on Tuesday when oil steadied somewhat, but the Loonie continued to broadly weaken during the U.S. session. And the Loonie apparently extended its losses after the Canadian Real Estate Association reported that home prices were up by 18.6% year-on-year as of March 2017.
And remember, the BOC did highlight a potential housing bubble last week when BOC head honcho Poloz said that: “when there is that large of a gap between what fundamentals might say and what you actually observe, then there is very unlikely to be a sustainable rate of price increase and I think it is timely to remind folks that prices of houses can go down as well as up.”
Other than that, Canada’s March CPI report was also a bit underwhelming since Canada’s CPI only increased by 0.2% month-on-month, missing expectations for a 0.4% increase. Year-on-year, CPI only increased by 1.6%, slowing down from February’s +2.0%. The reading also misses the +1.8% consensus, which also happens to be the BOC’s forecasted reading, so the miss was doubly disappointing. Just as bad, two of the core readings being monitored by the BOC got hit. Specifically, median CPI dipped to +1.7% year-on-year from +1.8% while trimmed mean CPI eased from +1.5% to +1.4%.
However, it’s not clear if this week’s final bearish kick to the Loonie was due to the CPI report or to oil, since oil took another beating at around the same time that the CPI report got released. It’s even probable that both took their toll on the Loonie.
The Other Currencies
Okay, here’s how the other currencies fared this week:
After a couple of weeks of mixed and messy price action, the euro finally showed some uniform price action once again. Not only that, the euro even managed to end up as the second best-performing currency this week.
The euro got buyers right from the get-go. Most of Europe was away for the Easter Monday holiday, so there were no apparent catalysts. However, it’s possible that the euro’s soft but broad-based rise on Monday may have been due to unwinding by euro shorts ahead of the French Presidential elections.
The euro’s soft rally accelerated on Tuesday, apparently because of Theresa May’s call for early elections in the U.K., although the euro did admittedly struggle against the safe-haven Swissy and yen, but the euro still ultimately ended up winning.
As to why the euro was the secondary beneficiary of Theresa May’s call for early elections, that’s likely because easing Brexit-related uncertainty would also be good for the Euro Zone. After all, the E.U. is the other party in the Brexit process, and less delays, political quarrels, and other sources of uncertainty in the U.K. would also mean a speedier and smoother negotiation process for the E.U.
However, it’s also highly probable that the euro got an extra boost from opinionway’s poll for the day, since the poll results for the first round of the elections showed that anti-EU Le Pen finally lost out to Macron for the first time, with 23% for Macron and 22% for Le Pen.
Moving on, the euro had a more mixed performance on Wednesday, but was mostly higher. The euro then had a last hurrah during Thursday’s London session, which market analysts attributed to another round of unwinding by euro shorts and easing jitters with regard to the French elections.
However, the euro later got slammed by sellers during Thursday’s U.S. session, very likely because of the terrorist attack in Paris, since that may tip the scales in favor of the two anti-EU French presidential contenders, namely the right-leaning Le Pen and the left-leaning Melenchon
Anyhow, the euro kept drifting mostly lower on Friday despite positive PMI numbers. Even so, the euro’s early gains ensured that the euro would come in second place this week. Although that may change next week, depending on how the French elections go on Sunday.
The Swiss Franc
The Swissy was a net winner this week and even ended up as the third best-performing currency after the pound and the euro. And like the pound and the euro, it looks like the main catalyst for the Swissy’s strength was Theresa May’s surprise call for an early election.
Sure, an early election in the U.K. and a sweeping victory by Theresa May’s Conservative Party (as suggested by the polls) would be good for the pound and even the euro, since that would remove Brexit-related uncertainty by a lot.
In the nearer-term, however, that event was likely viewed by the market as another geopolitical risk to add to an already long list of geopolitical events, which include the posturing by nuclear-armed North Korea, tensions between Russia and the U.S. after Trump ordered a missile strike on Syria to punish Assad for allegedly gassing beautiful babies, and the French Presidential elections (among others).
And this view was apparently confirmed when risk sentiment soured, causing global equity indices to tumble on Tuesday. And it’s highly likely that the safe-haven Swissy enjoyed the resulting safe-haven flows, since the Swissy broadly gained strength in the wake of Theresa May’s call for a snap election.
Hmm. I guess that also means that the sneaky SNB was likely unable to fight off safe-haven demand for the Swissy. Hah! Take that Jordan!
It’s not very likely, but it’s possible that the Swiss government ordered the SNB not to sneakily intervene in the forex market or the SNB itself abstained from intervening. After all, the Swiss government did issue the following statement on Tuesday, the same date as Theresa May’s call for early elections:
“The Swiss National Bank, according to its legal mandate, follows its own independent monetary policy. Their currency purchases are not aimed at devaluing the currency and raising the competitiveness of Swiss exports. Its goal is to limit the extent of the franc’s overvaluation and prevent a strong downward push in inflation.”
This was apparently a response to being included in the U.S. Treasury’s Currency Report from last Friday, which included Switzerland in its “Monitoring List” of countries that may be engaged in “unfair currency practices.”
Anyhow, whatever the case may truly be, the fact remains that the Swissy appreciated across the board on Tuesday and the SNB’s clandestine activities (if any) were not enough to hinder demand for the Swissy.
The Australian Dollar
The Aussie had a mixed start but got swamped by sellers across the board starting on Tuesday’s Asian session. And Aussie bears have two factors to thank for that: (1) slumping iron ore prices and (2) the not-so-upbeat RBA meeting minutes.
Iron ore is Australia’s main commodity export, so the slump in iron ore prices is obviously bad for Australia and the Aussie dollar. And the recent slide in iron prices has been consistently blamed on the slide in Chinese steel prices and the rise in Chinese steel inventories.
As for the minutes of the RBA’s meeting minutes, Forex Gump has the details, so read his write-up here, if you’re interested. The main takeaway, however, is that the RBA was very noticeably downbeat about the labour market while sounding more worried about consumer spending and the risks from a potential housing bubble. In addition, the RBA’s overall tone in the minutes sounded a bit more downbeat compared to the general tone in the April RBA statement from two weeks ago.
Moving on, risk sentiment also soured in the wake of Theresa May’s call for early elections, as mentioned earlier when we discussed the Swissy. And that, together with another slide in iron prices, likely helped to keep the Aussie down on Wednesday.
The Aussie finally found some respite on Thursday, thanks to improving risk sentiment and the recovery in iron ore prices. Market analysts aren’t quite sure as to what caused iron ore prices to recover, though.
Risk sentiment became a bit more mixed on Friday, but the Aussie was able to steadily extend its recovery, very likely because iron ore surged once more. Market analysts were once again baffled by this, since there was no fundamental catalyst, so they just pointed to speculative activity.
Anyhow, two days of soft recovery were not able to offset two days of severe losses, which is why the Aussie was a net loser this week.
The Japanese Yen
The yen’s winning streak finally came to an end this week. And as usual, the yen appears to be tracking bond yields for the most part.
The yen actually started the week on a strong footing, thanks to the slide in bond yields due to safe-haven demand for bonds. Unfortunately for yen bulls, the yen’s early gains got mostly wiped out when bond yields surged later on Monday. And according to market analysts, the surge in bond yields was due to rumors that Randal Quarles, an advocate of banking deregulation, would be chosen as the Fed’s vice chairman for bank supervision after Tarullo’s resignation.
Bond yields then plunged on Tuesday, thanks to safe-haven demand because of rising tension in the Korean peninsula, worries over the French elections, Theresa May’s call for early elections, and weaker expectations for a Fed rate hike, market analysts say. This allowed the yen to recover, although it had no chance against the pound and the euro while the Swissy gave it a hard time.
After that, bond yields rose on Wednesday and Thursday, thanks to improving risk sentiment in the equities market, which reduced safe-haven demand for bonds, according to market analysts. As a result, the yen also took a beating.
Finally demand for bonds picked up again on Friday, which market analysts attributed to jitters ahead of the French Presidential elections and in the wake of the terrorist attack in Paris. As such, the yen finally found some relief. Still, the damage was done, so the yen was a net loser this week.
The U.S. Dollar
The Greenback had a mixed performance this week. And looking at the chart above, we can also see that the Greenback’s price action was rather mixed and even diverging. This implies that opposing currencies dictated the price action of Greenback pairs, so the Greenback took advantage of the weakness on the part of the Loonie, the Aussie, and yen while getting stomped by the pound, the euro, and the Swissy. As for the Kiwi, NZD/USD was essentially range-bound for the week.
Even so, there were some interesting events for the Greenback. One of the most noteworthy was U.S. Treasury Secretary Steven Mnuchin’s Monday interview with the Financial Times wherein he tried to downplay The Donald’s comment last week that the “dollar is getting too strong.” The transcript of the interview, which was released on Wednesday, even showed that Munichin thinks that Trump was “absolutely not” trying to talk smack about the Greenback.
Mnuchin’s Monday interview gave the Greenback a soft boost during Monday’s U.S. session while the release of the transcript gave the Greenback another soft boost during Wednesday’s Asian session. However, his words didn’t really have a lot of “oomph” and sticking power.
Other than that, Trump also announced the following on Friday:
“We’ll be having a big announcement on Wednesday having to do with tax reform. The process has begun long ago but it really formally begins on Wednesday.”
That didn’t really seem to have a strong and uniform impact on the Greenback, though, but hopefully the Greenback will get a volatility infusion next Wednesday.
The New Zealand Dollar
Like the Greenback, the Kiwi also had a mixed performance this week, and as mentioned earlier, NZD/USD was basically trading sideways during the week, so the Kiwi’s win against the Greenback may just be a fluke.
However, the Kiwi did jump higher when New Zealand’s Q1 2017 CPI jumped by 1.0% quarter-on-quarter, beating expected 0.8% gain, as well as the +0.4% in Q4 2016. Although that later got faded for no clear reason other than profit-taking. The Kiwi also got a broad-based boost on Friday, but there was no clear catalyst for that as well.
Anyhow, here’s this week’s scorecard: