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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?

Of the top 10 movers, 6 are Loonie pairs and the Loonie happens to be losing out in all of ’em, so Loonie weakness appears to be a main theme this week.

But as you’ll see later, there was actually decent two-way action this week that knocked some pairs (euro and pound pairs in particular) off the list of top movers.

So, what drove price action this week? And how did the other currencies fare? Well, time to find out!

The Euro

Overlay of EUR Pairs: 1-Hour Forex Chart
Overlay of EUR Pairs: 1-Hour Forex Chart

The euro was the one currency to rule them all this week. And the euro’s climb started on Monday, apparently as a delayed reaction to positive data for the Euro Zone, which reinforced expectations of a future ECB tightening, market analysts say.

As for some specifics, the flash estimate for Euro Zone HICP in July showed a 1.3% year-on-year, which matched the previous month’s reading. Even better, the core flash estimate for HICP came in at 1.2%, accelerating from the previous month’s 1.1% rise.

More importantly, this marks the second month of stronger underlying annual inflation for the Euro Zone as a whole. In addition, the reading is already hitting the ECB’s 2017 forecast of 1.2%, as laid out in the ECB’s June macroeconomic forecasts.

Aside from that, the jobless rate for the Euro Zone as a whole came in at 9.1% in June, which is better than the consensus of 9.2%. Moreover, the reading for May was upgraded from 9.2% to 9.1%.

And to put that into context, the reading of 9.1% is a shared lowest reading for the jobless rate since February 2009. In addition, the reading is already way better than the ECB’s 2017 forecast of 9.4%.

Moving on, higher expectations of a future tightening move from the ECB and continued optimism over the positive “hard” data for the Euro Zone were able to sustain the euro’s strength on Tuesday and Wednesday, market analysts say.

After that, the euro’s performance became a bit more mixed on Thursday before getting hit by selling pressure on Friday when the U.S. NFP report was released.

Apparently, a mix of profit-taking by euro bulls after a profitable week and intense selling pressure on EUR/USD caused the euro to dip broadly lower in the wake of the upbeat (for USD) NFP report.

Friday’s dip wasn’t enough to erase the euro’s gains, however. Still, enough damage was done that only two euro pairs managed to close out the week with gains in excess of 1%.

The Canadian Dollar

Overlay of CAD Pairs & WTI Oil (Black Line): 1-Hour Forex Chart
Overlay of CAD Pairs & WTI Oil (Black Line): 1-Hour Forex Chart

The Loonie was the most vulnerable currency of the week. And the Loonie’s overall weakness was partially due to the tumble oil prices this week, which was blamed by market analysts on reports that OPEC exports rose to a record high of 26.11 million barrels per day in July, as well as U.S. oil output coming in at 9.43 million barrels per day, which is the strongest output level since August 2015.

  • U.S. WTI crude oil (CLG6) down by 0.36% to $49.53 per barrel for the week
  • Brent crude oil (LCOH6) down by 0.27% to $52.38 per barrel for the week

It should be noted, however, that oil was able to pare a large chunk of its losses on Friday because the upbeat U.S. NFP report raised expectations of a stronger U.S. economy and stronger oil demand, according to market analysts. Also, a report came out on Friday showing that U.S. oil rigs fell again, easing concern over higher U.S. oil output.

Oil likely wasn’t the only factor that drove the Loonie lower, though. As you probably saw in the overlay of Loonie pairs earlier, the Loonie didn’t really track oil prices very closely. In fact, there were noticeable instances when the Loonie’s price action diverged from oil. Oil recovered on Wednesday, for example, but the Loonie was mostly lower for the day.

According to some market analysts, the Loonie’s slide, together with the widening spread between U.S. and Canadian bond yields this week, pointed to unwinding of bets related to expectations of future rate hikes from the BOC. Basically, these market analysts are saying that some investors were taking profits off the table.

And profit-taking is certainly possible since top-tier reports, including Canada’s jobs report and The Toronto Real Estate Board’s housing report, were expected to come out this week.

Speaking of the Toronto Real Estate Board’s housing report, average home prices in Toronto slumped 6% month-on-month in July, marking the third consecutive month of declines in the Toronto area. The number of homes sold, meanwhile, plunged by 40.4% year-on-year in July.

The news only had minimal direct impact on the Loonie’s price action, but as mentioned earlier, the Loonie was reluctant to jump higher on Wednesday (the day before the report was released), even though oil prices were in recovery mode at the time. And that may have been due to expectations that the report would be bad.

Moving on to Canada’s July jobs report, it was mixed on the surface but somewhat positive overall.

First off all, employment change was a miss (+10.9K expected vs. +11.7K expected, +45.3K previous). However, a closer look at the details shows solid gains in full-time employment (+35.1K vs. +8.1K previous). It just so happens that part-time jobs were slashed by 24.3K.

And while the jobless rate unexpectedly fell from 6.5% to 6.3%, which is the lowest reading since October 2008, that was partially due to the labor force participation rate dropping from 65.9% to 65.7%, which the jobs report tried to pin on an aging population.

Wage growth also painted a mixed picture, since average hourly earnings fell by 0.35% month-on-month in July (+0.00 previous) but rose to a five-month high of 1.30% year-on-year (+1.29% previous).

Again, Canada’s jobs report was mixed, so the Loonie tossed and turned when the report came out. Oil was on the rise at the time, though, so follow-through demand for the Loonie initially prevailed (except on USD/CAD). Also, there is a very strong historical tendency for jobs growth to be worse-than-expected in July, as Forex Gump pointed out in his Event Preview for Canada’s jobs report. And savvy market players were probably anticipating that and opened preemptive shorts then used the jobs report to exit those shorts.

Unfortunately, the Ivey PMI reading deteriorated from 61.6 to  60.0 and that apparently made Loonie bulls give up since the Loonie tanked even as oil prices extended their gains.

The Japanese Yen

Overlay of Inverted JPY Pairs & US10Y Bond Yield (Black Line): 1-Hour Forex Chart
Overlay of Inverted JPY Pairs & US10Y Bond Yield (Black Line): 1-Hour Forex Chart

The yen was the second best-performing currency of the week. Although it is possible that the yen is only the third-best performing currency, depending on the data feed from your broker, since the yen only barely edged out a win against the Greenback.

Regardless, the yen is a net winner this week, even though risk-taking was actually the more dominant sentiment this week, given how global equities fared.

  • Shanghai Composite (SSEC) closed 0.27% higher to 3,262.08 for the week
  • Hang Seng (HSI) closed 2.16% higher to 27,562.68 for the week
  • Japan’s Nikkei 225 (N225) closed 0.04% lower to 19,952.33 for the week
  • The Euro Stoxx 50 (STOXX50E) closed 1.18% higher to 3,508.51 for the week
  • The U.K.’s FTSE 100 (FTSE) closed 1.95% higher to 7,511.71 for the week
  • Germany’s DAX (GDAXI) closed 1.11% higher to 12,297.72 for the week
  • The DOW (DJI) closed 1.20% higher to 22,092.81 for the week
  • S&P 500 (SPX) closed 0.19% higher to 2,476.83 for the week
  • Nasdaq Composite (IXIC) closed -0.36% lower to 6,351.56 for the week

And the yen was a net winner because bond yields were down for the week and the yen was taking cues from bond yields (as usual).

The yen actually had a mixed performance from Monday to Tuesday before beginning to track bond yields again come Wednesday, which implies that yen pairs were being pushed around by opposing currencies from Monday to Tuesday.

The lack of demand for the yen on Tuesday, in particular, was rather strange since bond yields plunged hard at the time, which should have given the yen a boost.

There were signs of risk-taking at the time, but other than that there were no direct catalysts that could have dampened demand for the yen. However, North Korea was back in the spotlight on Monday and Tuesday after it test launched an ICBM on Saturday. And that could have dampened demand for the yen, given it’s status as a U.S. ally and close proximity to North Korea.

Friday was also a weird day since the U.S. NFP report reinforced expectations for a Fed rate hike, which sent bond yields higher. However, only USD/JPY and NZD/JPY (to a lesser degree) were tracking bond yields. The other yen pairs, meanwhile, were mixed.

Anyhow, the yen’s refusal to weaken broadly when bond yields surged on Friday somewhat made up for the yen’s reluctance to rally across the board when bond yields plunged on Tuesday. And so the yen ended up as a net winner this week.

The New Zealand Dollar

Overlay of NZD Pairs: 1-Hour Forex Chart
Overlay of NZD Pairs: 1-Hour Forex Chart

The prevalence of risk appetite this week wasn’t able to save the higher-yielding Kiwi from ending up as the second worst-performing currency of the week.

The Kiwi’s broad-based weakness started on Tuesday, even though risk appetite prevailed at the time. And the Kiwi’s weakness was likely due to profit-taking by Kiwi bulls ahead of Tuesday’s dairy auction and after two consecutive weeks of broad-based Kiwi strength.

And as it turns out, the latest dairy auction was a disappointment since the GDT price index fell by 1.6%.

The Kiwi then got flooded by sellers later when New Zealand’s jobs report came out. Sure, the jobless rate ticked lower from 4.9% to 4.8% in Q2, which is the lowest in more than eight years. However, that was due to the labor force participation drop dropping from 70.6% to 70%.

In fact, net employment actually fell by 0.2% instead of increasing by 0.7%. Also, the labor cost index only rose by 0.4% quarter-on-quarter, missing expectations for a faster 0.5% rise.

Fortunately, risk appetite persisted on Thursday and Friday and so the Kiwi finally found a bottom and even staged a broad-based recovery. It’s also possible that some Kiwi shorts were taking profits off the table ahead of next week’s RBNZ statement. The damage was already done, though, and so the Kiwi ended up being a net loser this week.

The U.S. Dollar

Overlay of USD Pairs: 1-Hour Forex Chart
Overlay of USD Pairs: 1-Hour Forex Chart

The Greenback was a net winner this week. And interestingly enough, the Greenback had mixed and even diverging price action ahead of the NFP report, so it’s probably safe to say that the Greenback also got lucky because the comdolls (CAD, NZD, AUD) and the pound had catalysts that gave them a tough time this week.

The NFP report also helped of course, since it gave the Greenback enough “oomph” to steal a win from the Swissy (and JPY on some brokers), as well as close the gap on the euro.

As for some details on the July NFP report, non-farm payrolls increased by 209K in July, which is much more than the expected 180K increase. Moreover, the previous month’s 222K increase was bumped up by 9K to 231K, although the reading May was slightly reduced by 7K to 152K. Still, that means that jobs grew by 2K more than originally estimated.

The jobless rate also eased from 4.4% to 4.3%, even as the labor force participation rate climbed to a three-month high of 62.9%. This marks the second consecutive month of climbing participation rate, which is a good sign for the U.S. economy.

Also, the fact that the jobless rate improved as the participation rate climbed is also a good sign for the U.S. economy since it means that the U.S. economy was able to keep up with working age population growth and provide jobs to returning workers at the same time.

Finally, average hourly earnings grew by 0.3% month-on-month, which is within expectations and is faster than the previous month’s 0.2% increase.

Overall, a rather upbeat jobs report that also caused odds for a December rate hike to improve a bit and gave the Greenback a broad-based lift. Although some market analysts also pointed to White House economic adviser Gary Cohn’s comments about Trump’s tax plans as giving the Greenback an extra lift.

The Pound Sterling

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

The pound had a promising start and then continued to steadily climb higher, so much so that it was the second best-performing currency of the week just before the BOE statement rolled around. And demand for the pound was fueled by expectations that the BOE would maintain its hawkish stance and give hints on when a future rate hike may happen, market analysts say.

There were also positive economic data for the U.K. that may have sustained demand for the pound. The latest manufacturing PMI reading for U.K., for instance,  came in at 55.1, which is better than the consensus of a 54.4 figure and puts an end to three months of ever poorer readings.

The U.K.’s services PMI reading also rose from 53.4 to 53.8 in July, which is slightly better compared to the consensus that it would rise to 53.6.

The rug got pulled from under the pound when the BOE statement did roll around, however. Forex Gump has the details here, if you’re interested. I also highlighted the most relevant points in Thursday’s London session recap, which you can read here.

The gist of it all is that the BOE maintained its hawkish bias and even hinted at a future rate hike when it said that:

“[S]ome tightening of monetary policy would be required to achieve a sustainable return of inflation to the target.”

“[I]f the economy were to follow a path broadly consistent with the August central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.”

The BOE did downgrade its growth projections while slightly upgrading its inflation projections for 2017. However, those are all within expectations. So why did the pound come crashing down then?

Well, there are varying opinions, with some market analysts pointing to the downgraded growth forecasts (even though that was widely expected) and other market analysts pointing to the weaker forecasts for wage growth (although that was also somewhat expected).

The string that binds them all, though, is that the market is skeptical on the BOE’s hawkish rhetoric and willingness to deliver a rate hike. This is supported by the fact that BOE negotiations have been kinda rocky (so far) but the BOE reiterated that its forecasts hinge on the assumption of a smooth Brexit.

In addition, the downgraded growth forecasts were blamed by the BOE on “Brexit and related uncertainties,” which implies that the BOE is beginning to worry about Brexit and may have even reignited Brexit-related worries.

Also, the fact remains that with BOE Super Hawk Kristin Forbes no longer an MPC member, the hawkish camp’s position has been weakened, especially since no hawk has decided to to step in her shoes.

The Swiss Franc

Overlay of CHF Pairs: 1-Hour Forex Chart
Overlay of CHF Pairs: 1-Hour Forex Chart

The Swissy had a mixed performance this week and price action on Swissy pairs were kinda messy and rangey, which probably means that the Swissy is in consolidation mode. Quite understandable really, especially after last week’s monster moves on the Swissy.

Anyhow, not much in terms of catalysts for Swissy and not much in terms of price action on the Swissy. Even so, it’s worth noting that the positive correlation between the Swissy and the euro has returned after getting messed up last week.

Their dance moves are not as synchronized as they were before last week’s weird bout of intense Swissy weakness caused a split between the euro and the Swissy, though.  

NZD/CHF (black) vs. EUR/NZD (inverted, red): 1-Hour Forex Chart
NZD/CHF (black) vs. EUR/NZD (inverted, red): 1-Hour Forex Chart
GBP/CHF (black) vs.  EUR/GBP (inverted, red): 1-Hour Forex Chart
GBP/CHF (black) vs.  EUR/GBP (inverted, red): 1-Hour Forex Chart
CAD/CHF (black) vs. EUR/CAD (inverted, red): 1-Hour Forex Chart
CAD/CHF (black) vs. EUR/CAD (inverted, red): 1-Hour Forex Chart

The Australian Dollar

Overlay of AUD Pairs & Iron Ore (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Iron Ore (Black Line): 1-Hour Forex Chart

The Aussie was also mixed for the week, apparently because of conflicting sentiment on the Aussie, given that the RBA statement was a disappointment but iron ore was in rally mode this week, which made the Aussie vulnerable to opposing currency price action.

The Aussie also missed out when iron ore jumped on Thursday, likely because forex traders were more disappointed with Australia’s narrower trade surplus in June ($0.86B vs. $1.78B expected, $2.02B previous).

Anyhow, the iron ore rally this week was fueled by positive Chinese data and Chinese demand, according to market analysts.

As for the RBA statement, Forex Gump has the details on that so read it here, if you’re interested.

The short of it is that the remained optimistic on its outlook but blatantly pointed out that the Aussie’s recent strength and further strengthening of the Aussie are bad when it said the following (emphasis mine):

“The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

Okay, here’s this week’s scorecard: