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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 Market Movers of the Week (May 1-5, 2017)

Last week’s themes of euro domination and yen bashing continued to play out this week, with Aussie weakness as a new theme. What drove price action on these currencies? And how about the other currencies? How did they fare this week? Time to find out!

The Euro

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

EUR Pairs Ranked

The euro had another good run this week. In fact, it was even the top currency of the week yet again.

The euro showed strength right from the get-go by scoring wins against most of its rivals on Monday, losing out only to the Aussie and the Kiwi. Europe was away on holiday at the time and there were no apparent catalysts, but market analysts were quick to attribute the euro’s strength to last week’s strong inflation readings for the Euro Zone.

There were mixed economic reports on Tuesday, but none triggered a reaction from the euro, as the euro had another mixed performance while closing mostly higher for the day. Once again, the “feel good” vibes from the Euro Zone’s strong inflation data were likely in play.

After that, the euro’s price action became a bit messy on Wednesday, so opposing currencies likely dictated price action on euro pairs. As to why interest on the euro waned, that was likely because of wariness ahead of the French Presidential debates.

The jitters caused by the, er, “lively” debate made the euro dip a bit. The euro then steadied after that, well, that is until mainstream media outlets launched an all-out media blitz declaring Macron as the winner of the debate, as I detailed in Thursday’s morning London session recap. This apparently made market players believe that centrist Macron, who is viewed as the status quo candidate, will very likely be the next French president, since the euro began to rise higher for the rest of the day before becoming a bit more mixed come Friday.

The Japanese Yen

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

JPY Pairs Ranked

The yen got its butt kicked for the third consecutive week. And if you thought that the yen was tracking bond yields for the most part, then you will only be partly right because the yen showed even more signs of decoupling compared to last week. Is the correlation between the yen and bond yields finally coming to an end?

USD/JPY (Red) vs. U.S. 10Y Bond Yields (Blue)
USD/JPY (Red) vs. U.S. 10Y Bond Yields (Blue)

Anyhow, things started normally enough, with the yen on the back foot as bond yields rose on Monday, thanks to uncertainty in the U.S. because of Trump’s comments about breaking up big banks, the 0.1% dip in the U.S. core PCE index,  and Mnuchin’s comments that issuing 30-year U.S. bonds  “can absolutely make sense“, market analysts say.

Bond yield continued to rise on Tuesday, but plunged hard later. And according to market analysts, that was due to the weak reading for U.S. auto sales since that points to a slowdown in the U.S. economy. However, the yen failed to follow suit, opting to steadily weaken or trade sideways instead, which shows weakness.

As I noted in Tuesday’s Asian recap, the main trigger for the yen’s weakness on Tuesday was likely the 0.1% dip in the BOJ core CPI since that likely reinforced expectations that the BOJ’s bond-buying program ain’t going to stop any time soon.

However, it’s also likely that yen traders were wary of going long on the yen after Japanese Finance Minister Taro Aso’s comments during his talk at the Milken Institute’s Global Conference during Monday’s late U.S. session. You see, Aso warned about the yen’s status as a safe-haven currency, given the sabre-rattling between the U.S. and North Korea. Specifically, Aso warned that: “We should always think about what the yen would be like if something happens in North Korea.” And while “the yen is said to be a safe-haven currency,” the current North Korea situation has made the yen “extremely unstable”.

And it certainly didn’t help (yen bulls) that headlines on that day include “North Korea Warns Region Is ‘Close to Nuclear War’ Amid U.S. Drills” and “North Korea threatens the ‘final doom of the US’ after Trump sends supersonic nuclear bombers over the Korean peninsula

Moving on, things looked somewhat normal again on Wednesday, as the yen mostly weakened while bond yields rose. And market analysts attributed the surge in bond yields to upbeat economic reports for the U.S. and the Fed’s playing down of the slowdown in GDP during the FOMC statement.

Bond yields continued to rise on Thursday, thanks to higher rate hike odds after strong U.S. labor data, market analysts say. Instead of getting whupped across the board, however, the yen ended up mixed, so opposing currencies likely had more say on Thursday.

Bond yields were choppy on Friday, but relatively flat for the day. The yen, however, initially tried to rally before getting clobbered later. The early rally was apparently a reaction to a CNBC Interview with BOJ Shogun Kuroda.

As for some of the specifics, Kuroda had this to say about inflation, employment, and wages (emphasis mine):

“I think deflation by definition means continuous downward movement of prices. That situation has gone already. We are not in a deflationary situation anymore. However headline inflation has been quite slow to adjust upward, partly because oil prices declined quite sharply in the last two years.”

But I’m quite sure that with continuous accommodative monetary policy supported by fiscal policy, we’d be able to eventually raise wages and prices significantly.”

“So I think if we continue our fiscal and monetary policy in coming years, if labor market continues to tighten – at this stage, unemployment rate is 2.8 percent. 2.8 percent unemployment rate, is, even in Japan, full employment situation. And if this situation continues, eventually, tight labor market conditions would force wages to rise significantly.”

Kuroda also spelled out that the BOJ is working on an exit strategy from its easy monetary policy, although he did emphasize that discussing the BOJ’s exit strategy would be “premature” (emphasis mine).

Inside the bank, of course we have various simulations of potential exit strategies and so on and so forth. But as I said, it’s premature to openly discuss exit strategy at this moment when inflation rate is still close to zero, although improving. And we expect inflation, price target to be met sometime around fiscal 2018. But there could be downside as well as upside risks. And we have to be flexible. And at this moment, it’s certainly premature to speak, in concrete terms, about exit strategy.”

Kuroda’s statements caused the yen to strengthen, but risk-taking in Europe and the U.S. would later force the yen to give back its gains (and then some), although another bout of sabre-rattling from North Korea may have helped push the yen down as well.

The Australian Dollar

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

AUD Pairs Ranked

This week was rather rough for the Aussie, so much so that it ended up as the second worst-performing currency after the yen. And it all boils down to the Aussie getting dragged lower by the commodities slump this week.

Bloomberg's Commodity Index
Bloomberg’s Commodity Index

As for details, the Aussie had a strong start on Monday. And while commodities were broadly higher on Monday, other factors were likely in play as well.

One probable factor is market players unwinding some of their shorts bets from last week. After all, concerns about a protectionist U.S. trade policy did ease a bit when Trump backpedaled on killing NAFTA last Thursday.

Another probable factor is preemptive buying of the Aussie ahead of the RBA statement since the Aussie quite noticeably began getting bids when the RBA released its commodity index, which showed a 3.5% month-on-month increase (-1.7% previous) in April.

Anyhow, when the May RBA statement did roll around, the RBA reiterated its worries about the housing market, as well as its warning that “Growth in housing debt has outpaced the slow growth in household incomes.”

Overall, however, the May RBA statement was noticeably more neutral compared to the worried tone of the April RBA statement. For one, the RBA sounded a bit more upbeat about the labor market, although the RBA did note that wage growth remains slow, and “is likely to remain the case for a while yet.”

The Aussie tried to jump higher on the more neutral tone of the RBA statement, but sellers were lurking and quickly pounced. Commodities were beginning to show signs of weakness by then, but iron ore, Australia’s main commodity export, was not one of them (yet) since it was still in rally mode at the time.

As such, the commodities slide wasn’t the likely reason for the selling pressure on the Aussie, which brings us back to one of the probable factors that may have driven the Aussie higher on Monday – preemptive buying. In this case, it was likely that Aussie bulls who opened preemptive positions were closing out their bets, applying some selling pressure on the Aussie, but not enough to erase the gains from Monday.

Unfortunately for the Aussie, iron ore did join the commodities carnage on Wednesday, and so the Aussie tanked hard as a result. The commodities rout intensified on Thursday, with iron ore getting hit the hardest. Market analysts blamed the commodities rout, particularly of base metals, on demand worries in China amid disappointing Chinese PMI reports and the liquidity crunch in China because of the regulatory crackdowns by the Chinese government.

The Aussie finally found some respite on Friday, thanks to recovering commodity prices. The damage was already done, however, and so the Aussie ended up as one of the major casualties of the week. But if it’s any consolation, the Aussie’s recovery on Friday is the reason why it managed to steal a win against the yen.

As for other interesting stuff related to the Aussie during the week, noteworthy among these are Australia’s trade balance and RBA Governor Lowe’s speech.

Australia’s trade surplus narrowed in March, but it ain’t that bad since exports actually rose by 2.38% to a record high of $33.34 billion. The narrower surplus was due to imports jumping by 4.58%. And that, in turn, was largely due to the 9.74% surge in imported consumer goods, which may be a sign that retail sales recovered in March.

As for Lowe’s May 4 speech, we’ve heard most of it before, but Lowe did provide some forward guidance when he said that “at some point, interest rates in Australia will increase.”

However, Lowe was quick to add that: “To be clear, this is not a signal about the near-term outlook for interest rates in Australia but rather a reminder that over time we could expect interest rates to rise, not least because of global developments.”

Even so, it’s now clear that the RBA is more likely to hike than to cut again. And besides, cutting further could potentially worsen Australia’s housing market problems.

Unfortunately, the positive details of the trade report and Lowe’s hint that the RBA has a hiking bias both got swept aside by the commodities carnage this week.

The Other Currencies

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

The New Zealand Dollar

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

NZD Pairs Ranked

The Kiwi managed to recover after getting stomped hard last week. Heck, the Kiwi even ended up as the second best-performing currency against the week. But with the exception of AUD/NZD, however, the Kiwi’s path to victory this week wasn’t a very straight one, as you probably saw in the chart above.

Like the Aussie, the Kiwi had a strong start on Monday. There were no direct catalysts for the Kiwi, but profit-taking by last week’s shorts and support from the rise in commodity prices were the likely reasons for the Kiwi’s early wins.

The Kiwi was then mixed for most of Tuesday, but began to get buyers after the dairy auction yielded a 3.6% increase in the GDT price index. The Kiwi then spurted higher when New Zealand released its upbeat quarterly jobs report, which showed that employment increased by 1.2% in Q1 causing the jobless rate to ease from 2.2% to 1.9%, even as the participation rate ticked higher.

Unfortunately for the Kiwi bulls, the commodities carnage was in full swing on Wednesday and Thursday, and so the Kiwi got dragged lower as a result.

The Kiwi then steadied ahead of the RBNZ’s quarterly survey of expectations. And as it turns out, one-year-ahead inflation expectations rose from 1.56% to 1.92% while two-year-ahead expectations rose from 1.92% to 2.17%. This is a good sign for New Zealand, since inflation expectations usually inform wage negotiations, which is why the Kiwi tried to climb higher.

However, GDP expectations fell from an annual rate of 3.11% for the year ahead to just 2.81%. Moreover, survey respondents also expected the jobless rate to first worsen to 5.1% in one year before improving to 4.9% in two years, which is why the Kiwi returned its gain shortly after.

No worries, though, since recovering commodity prices finally gave the Kiwi a broad-based bullish boost that allowed it to finish higher against most of its peers.

The Swiss Franc

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

CHF Pairs Ranked

Last week, I asked if Swissy strength will continue next week and if the SNB’s currency manipulation power has been finally dulled after Switzerland was included in the U.S. Treasury’s Currency Report “Monitoring List” of countries that may be using “unfair currency practices.”

Those were just rhetorical questions, but as it turns out, the answer to both questions is a resounding “yes” because the Swissy did rather well yet again.

And as strange as it sounds, the Swissy started to find broad-based demand after the BOJ reported a 0.1% dip its core CPI. However, it’s also possible that some market players, especially the ones who got spooked by Taro Aso’s comment about the yen being “extremely unstable” as a safe-haven because of the North Korea situation, were fleeing towards the safe-haven Swissy.

The Swissy continued to gain strength for most of Wednesday, but encountered selling pressure during the U.S. session. Aside from risk-taking in North America, there wasn’t really any catalyst for the Swissy, although profit-taking ahead of the French Presidential elections may have been a factor. After all, a victory for anti-EU Le Pen would likely be bad for Switzerland as well, given that Switzerland exports mainly to the E.U.

Anyhow, the Swissy later tracked the euro higher when mainstream media outlets launched (what looked like) a coordinated media blitz to promote Macron as the winner of the French presidential debate, which reinforces the idea that the earlier selling pressure on the Swissy was due to profit-taking because of the Presidential debates.

After that, the Swissy had a rather mixed Friday, but the gains harvested from earlier were enough to propel the Swissy into third place for yet another week.

The Canadian Dollar

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

CAD Pairs Ranked

The Loonie was hard-pressed this week and ranked as the third worst-performing currency of the week after the yen and the Aussie dollar. And Loonie bears can sing their praises to (while Loonie bulls can utter their curses on) the slide in oil prices this week since Loonie pairs were tracking oil prices rather closely (chart for oil is inverted).

  • U.S. crude oil down (CLG6) by 5.58% to $46.51 per barrel for the week
  • Brent crude oil down (LCOH6) by 4.45% to $49.43 per barrel for the week

As to what drove oil lower this week, market analysts pointed to the liquidity crunch in China that I mentioned earlier when we discussed the Aussie, as well as persistently high oil inventory levels, hedge funds and other players going short on oil and speculation that Saudi Arabia may start pumping more oil again. As for the sharp reversal on Friday, that was supposedly due to comments from Saudi Arabia stating that OPEC will likely extend its oil cut deal on May 25, and that Russia will likely play along, market analysts say.

The U.S. Dollar

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

USD Pairs Ranked

Like the past couple of weeks, price action on the Greenback was another mixed bag of nuts this week, which indicates that opposing currencies were still dictating price action on Greenback pairs for the most part.

There were limited bouts of uniform price action, though. The first was when the Greenback got a bullish boost across the board a few hours before and then after the May FOMC statement. By the way, Forex Gump has the a write-up on the FOMC statement, so read it here if you want the details.

The gist of it all, though, is that the Fed downplayed the weak reading for Q1 U.S. GDP growth and completely ignored the very poor March NFP report while saying that inflation “has been running close to the Committee’s 2 percent longer-run objective.” This was apparently taken as a hawkish sign that the Fed is still on track for two more hikes this year, causing odds for a June rate hike to rise.

Moving on, the Greenback had another bout of uniform price action when the Greenback slid across the board ahead of the vote on the U.S. healthcare bill, likely on jitters that the bill may fail to pass. Well, the bill did barely pass on a very tight 217-213 vote, and so the Greenback’s bleeding stopped.

The final round of uniform price action on the Greenback was in the aftermath of the NFP report when the Greenback grudgingly weakened broadly (except on USD/JPY). Forex Gump has the usual breakdown of the latest NFP report, so check out his write-up here.

The short of it, however, is that wage growth met expectations but the previous reading was revised lower while the annual reading continued to weaken. Meanwhile, the jobless rate improved partly because the participation rate worsened. And these details, wage growth in particular, disappointed traders causing them to dump the Greenback. Although odds for a June rate hike were essentially unchanged, as Forex Gump also pointed out.

The Pound Sterling

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

GBP Pairs Ranked

After three weeks of showing clear and broad-based strength, price action on the pound became a mixed mess this week. Heck, the pound’s price action even looks messier than that of the Greenback’s (at first glance). However, there is a sort of order in this chaos, and hopefully you’ll get it when you’re done reading (or you can just skip to the last paragraph).

The pound had a poor start (but traded sideways against the yen), apparently because of renewed Brexit jitters after E.U. officials took a tough stance on the U.K. amid what E.U. officials referred to as “illusions” on the part of the Brits with regard to negotiating a free trade deal with the E.U.

And it only got worse as the day progressed, thanks to a leaked account of what supposedly transpired during a meeting between U.K. Prime Minister Theresa May and top E.U. officials, including European Commission President Jean-Claude Juncker, wherein May and the E.U. officials supposedly bickered with one another.

Pound weakness persisted on Tuesday, but pound bulls later charged in when the U.K. printed a better-than-expected reading for its April manufacturing PMI (57.3 vs. 54.0 expected, 54.2 previous).

The U.K.’s April construction PMI, which was released on Wednesday, was also better-than-expected (53.1 vs. 52.1 expected, 52.2 previous), but the pound ended up mixed, very likely because the pound got saddled when another Brexit-related drama unfolded during the session. Specifically, Brexit Secretary David Davis told the media that: “We will not be paying €100 billion,” referring to the obligations that the U.K. has to settle in order to leave the E.U.

Davis also threatened to walk out of the negotiation process by saying that “Theresa [May] said no deal is better than a bad deal. This morning you see demands for €100 billion in the papers. It has gone from €50 billion, to €60 billion to €100 billion.”

Moving on, the pound got a final bullish infusion on Thursday, thanks to the U.K.’s April services PMI, which was better-than-expected as well (55.8 vs. 54.6 expected, 55.0 previous), although the pound still got its butt kicked by the euro and the Swissy. Finally, price action on the pound became rather messy on Friday.

In short, the pound wasn’t necessarily vulnerable to opposing currency price action. Rather, pound bulls and pound bears were bitterly fighting it out, as pound bulls tried to buy up the pound on positive data while pound bears tried to dump the pound on renewed Brexit jitters, with the resulting price action ending up looking like a mess (at first glance).

Okay, here’s this week’s scorecard: