Partner Center Find a Broker

The forex trading week has come and gone, so it’s time to take a look at how the major currencies performed and what drove price action.

Looking at the table of top 10 movers, we can see that 7 out of 10 are USD pairs, with the Greenback on the winning side in all of ’em. It’s therefore pretty clear that Greenback strength was the dominant theme this week.

So, what pushed USD higher this week? And what about the other currencies? What drove their price action? Well, read on and find out!

But before that, here’s this week’s scoreboard.

And if you only want to find out what happened to a specific currency, then you can just skip to that currency by clicking on it below.

The U.S. Dollar

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

If you can still remember last week’s USD recap, I was wondering back then if ABC News’ post-market hours correction to its bombastic report, as well as the approval of the Senate’s version of the tax reform bill, will cause gaps to form on Monday.

Well, the Greenback did gap higher across the board alright. However, the Greenback’s price action quickly became a mess as traders tried to close the gaps on most Greenback pairs.

Anyhow, it didn’t become clear until Wednesday that the Greenback was getting bid higher across the board. However, most Greenback pairs were already tilting to the upside on Tuesday, despite a slew of disappointing economic data.

And according to market analysts, the Greenback was well-supported on Tuesday because of cautious optimism that we would see further progress on the tax reform bill.

That optimism was rewarded on Wednesday when the U.S. House of Representatives voted 222-192 in favor of starting the formal process of reconciling the Senate and House versions of the tax reform bill, with the U.S. Senate voting 51-47 later, also in favor.

Both events didn’t really trigger an explosive reaction on the Greenback. However, both were seen as further progress on tax reform so they were cited as the reasons for the steady demand on the Greenback until Friday when the NFP report was released and caused the Greenback to wobble a bit.

Sure, jobs growth was impressive (228K vs. 195K expected, 244K previous). However, wage growth only printed a 0.2% month-on-month rise (+0.3% expected). Also, the previous reading was downgraded from flat to a 0.1% contraction.

The NFP report wasn’t able to derail expectations for a rate hike next week, though, which is why the bearish reaction to the poor wage growth was limited.

And on that note, make sure to keep an eye on the Greenback next week since the final FOMC statement of the year is coming up. Also, we’ve got other top-tier U.S. economic reports lined up, including the latest CPI and retail sales reports.

Of course, fresh news on the tax reform bill will likely still have an impact on the Greenback’s price action. After all, both the House and the Senate only voted this past week to start the process of reconciling their respective versions of the tax bill, so this drama is not over yet.

The Euro

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

The euro had a mixed performance this week and price action across euro pairs were mixed and messy, with periods of diverging price action. We can therefore conclude that the euro was vulnerable to opposing currency price action during this past week.

As to why the euro was vulnerable to opposing currency price action, the lack of catalysts is one likely reason since only mid-tier economic reports (at best) were released during the course of the week.

Also, the political limbo in Germany hasn’t been resolved yet. Although that may change sooner or later since Social Democratic Party of Germany (SPD) leader Martin Schulz was able to convince his fellow SPD members to greenlight coalition talks with Angela Merkel.

Talks are expected to start next week, although most political commentators think a deal won’t be hammered out until early next year.

Also, it’s worth pointing out that the news of that positive development in German politics didn’t really have a major impact on the euro’s price action, but hopefully we’ll get more action next week as coalition talks start.

We’ll also be getting the latest batch of PMI reports for the Euro Zone. And we also have the final ECB statement and presser for the year to look forward to. So we’ll hopefully get more uniform price action from the euro next week.

The Pound Sterling

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

 

The pound had another good run and was this week’s second best-performing currency after the Greenback.

The pound’s gains were relatively small, though. And if you take a look at the overlay of GBP pairs above, that was because the pound struggled to reach positive territory (above horizontal dashed line) on most pairs for most of the week, very likely because of disappointing news on Monday that British PM Theresa May failed to deliver on a highly anticipated deal to move negotiations onward to a post-Brexit trade deal after Northern Ireland vetoed a draft deal.

The pound was finally able to print grains across the board (but only briefly on GBP/USD) on Thursday, likely due to preemptive positioning on speculation that British PM Theresa May and European Commission President Jean-Claude Juncker will announce a breakthrough in Brexit talks during their scheduled joint statement on Friday.

And it probably helped (to fuel speculation) that there were a few promising signs ahead of the joint statement, including some upbeat comments from Irish officials.

And when Theresa May and Juncker finally did announce a breakthrough in talks on Friday, the pound had a bearish reaction, which heavily implies that the pound’s Thursday rally was fueled by preemptive positioning and that a “buy the rumor, sell the news” scenario played out.

Dip buyers were waiting and limited the pound’s slide, however. But even they apparently called it quits when E.U. chief Brexit negotiator Michel Barnier gave a speech, likely because Barnier gave a reality check when he said the following (emphasis mine):

“Let me be clear: there is still work to be done and negotiations on a number of issues, such as the governance of our agreement and Euratom. There are more hurdles to take. We will need to have the final version of the Withdrawal Agreement ready by October 2018.”

Barnier also stressed the importance of next week’s E.U. Summit when he said the following:

“It is now up to the European Council to decide whether this constitutes sufficient progress, and to move the talks to the next stage.”

Looks like the Brexit-related fun and games ain’t over yet! Do note, however, that we also have a bunch of top-tier U.K. economic reports on next week’s docket, as well as the final BOE statement of the year. It’s therefore highly likely that next week will be a busy one for the pound.

The Swiss Franc

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

I noted in last week’s CHF recap that the Swissy and the euro had very similar price action but the Swissy was able to outpace the euro when the Swissy surged on Friday, thanks to an ABC News report that triggered mass hysteria and intensified risk aversion.

I also mentioned that ABC News issued a correction to that report after the markets already closed for the week. I then quipped that it would be interesting to see if the Swissy would give back its gains (or not) when the new trading week finally rolled around.

Well, we got our answer – a resounding “yes” – since the Swissy gapped lower across the board. In fact, those gaps are the reasons why the Swissy was the worst-performing currency of the week, even though Swissy and euro pairs had (the usual) very similar price action, as you can see in the sample pairs below.

And it’s just trivia, but if those gaps are disregarded, then the Swissy would actually be mixed for the week, similar to the euro.

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

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 had roughly uniform price action across yen pairs but was mixed for the week. And as you can see in the overlay of inverted JPY pairs above, yen pairs had two-way action this past week. And it’s this two-way action that resulted in the yen’s mixed performance despite the uniform price action.

As you can also see, yen pairs were (as usual) taking directional cues from bond yields and bond yields also had two-way action during this past week.

Another reason for the yen’s mixed performance were the gaps on most yen pairs at the start of the week. You can see how the gaps contributed to the yen’s mixed performance by using the previous week’s closing prices (dashed horizontal line) as the reference point.

And if you’re wondering what does gaps were all about, recall that I mentioned in last week’s JPY recap that the yen got a chance to take back some lost ground during Friday’s U.S. session when bond yields plunged hard after an ABC News report claimed that ex-adviser Flynn will supposedly testify that Trump directed Flynn to contact the Russians while Trump was still a candidate.

But as mentioned earlier when we discussed the Greenback and the Swissy, ABC News issued a correction to its bombastic report after the markets were already closed. And that’s why the yen gapped lower against its peers as bond yields gapped higher on Monday.

As a side note, I noted in Thursday’s Asian session recap that BOJ Shogun Kuroda gave the strongest hint (so far) of a future exit from the BOJ’s super loose monetary policy. However, that didn’t do diddly squat for the yen’s price action. But then again, Kuroda did keep stressing that it’s still too early to talk about specifics and that the current super loose policy is still appropriate.

Oh, well. I suppose I’m just feeling nostalgic for the old times when the yen actually responded to economic catalysts and comments from the BOJ, rather than just taking directional cues from bond yields and risk sentiment.

The Canadian Dollar

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

The Loonie was a net loser this week. And while oil prices were down for the week, oil wasn’t the reason for the Loonie’s poor performance this week. In fact, the Loonie didn’t really track oil that closely, as you probably saw in the overlay of CAD pairs and oil above.

Anyhow, the main reason for the Loonie’s poor performance this week was that the Loonie got a mighty good whupping across the board in the wake of Wednesday’s BOC statement.

As for details, I already gave a quick rundown in Wednesady’s U.S. session recap. The gist of it, though, is that the BOC maintained the Overnight Rate at 1.00%. And while the BOC reaffirmed that it’s more likely to hike over time, it also tried to sound neutral and cautious when it said the following (emphasis mine):

While higher interest rates will likely be required over time, Governing Council will continue to be cautious, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.

The BOC also refrained from sounding too happy with regard to the recent positive economic developments. Instead, the BOC  took a stab at uncertainties related to NAFTA when the BOC said the following (emphasis mine):

The global outlook remains subject to considerable uncertainty, notably about geopolitical developments and trade policies.

Given the BOC’s cautious tone, odds for a January BOC rate hike dropped from 41% to 26%, according to market analysts. And that’s very likely why the Loonie’s reaction to the BOC statement was rather strong, even though there was no presser.

The Australian Dollar

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

As usual, the Aussie took directional cues from gold for the most part. And since gold was down hard for the week because of the Greenback’s strength, the Aussie also took hits and had another bad run this week. Heck, the Aussie was even the second worst-performing currency of the week.

The Aussie’s price action wasn’t dictated solely by gold prices, however, since top-tier Australian economic reports also had an impact on the Aussie’s price action.

This can be clearly seen on Tuesday when Australia’s October retail sales report beat expectations (+0.5% vs. +0.3% expected, +0.1% previous), causing the Aussie to jump higher even as gold prices traded sideways.

The RBA also gave its latest monetary policy announcement a few hours after the retail sales report was released. That event was essentially a dud, but it did allow the Aussie to extend its gains slightly, likely because the latest RBA statement was a tad more optimistic on inflation, given that the RBA removed the following statement from its assessment and outlook.

[I]nflation is likely to remain low for some time, reflecting the slow growth in labour costs and increased competitive pressures.

The RBA also omitted the part about the Aussie’s appreciation versus the Greenback, noting only that:

The Australian dollar remains within the range that it has been in over the past two years.

However, that RBA still warned about the negative effects of a stronger Aussie when it repeated its mantra that:

An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

Anyhow, another top-tier economic report that had a very noticeable impact on the Aussie’s price action was Australia’s Q3 GDP report, since that only printed a 0.6% quarter-on-quarter expansion, missing the consensus for a 0.7% increase and slowing from the Q2’s 0.9% quarterly growth.

Year-on-year, that translates to a 2.8% growth, missing expectations for a +3.0% annual reading.

Aussie pairs quickly turned to gold prices for direction, though, likely because the 2.8% growth rate is still the best in five quarters and marks the second consecutive quarter of stronger annual growth to boot. Also, an annual growth rate of 2.8% is still beating the RBA’s forecast that GDP growth will print a 2.5% increase by the end of the year, as laid out in the November Statement on Monetary Policy.

The New Zealand Dollar

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

The Kiwi had a mixed start but was getting broad-based support by the time Monday’s U.S. session rolled around, likely because of the risk-on vibes at the time.

The Kiwi then got a bullish infusion early on Tuesday, apparently as a reaction to Acting RBNZ Guv’nah Spencer’s speech.

Interestingly enough, Spencer didn’t really say anything new. However, market analysts paid special attention to Spencer’s statement below (emphasis mine):

“In our recent November Monetary policy statement, we assume that weak global inflation will persist in line with the forecasts of the international institutions. This now puts some risk on the upside for inflation and interest rates. If the assumption proves incorrect and global inflation picks up in response to increased global growth, then we would likely see higher international interest rates, a lower NZ dollar exchange rate and higher traded goods inflation. This would put upward pressure on domestic interest rates.”

In short, the RBNZ is saying that it assumed that global inflation will remain weak. So if global inflation picks up, and other central banks raise their interest rates, then that would likely mean that the RBNZ would have to raise rates earlier than expected as well.

But as noted earlier, this is not really new since the RBNZ had this to say in page 37 of the November RBNZ Monetary Policy Statement (emphasis mine):

One of the key judgements underpinning the central projection is that global inflation recovers slowly. This contributes to below-average tradables inflation in the medium term, necessitating an increase in non-tradables inflation to meet the Bank’s inflation target.”

Stronger global inflation would directly boost New Zealand’s import prices. Higher global inflation would also prompt a faster tightening of global monetary policy than assumed, resulting in a faster narrowing of interest rate differentials and, therefore, a depreciation of the New Zealand dollar TWI.”

Without an appropriate monetary policy response, CPI inflation would settle above the midpoint of the target range. In this scenario, the OCR would need to be around 100 basis points higher.”

The statements above and Spencer’s comments are worded differently, but they essentially have the same message. But somehow, Spencer’s comments had an impact on the Kiwi’s price action.

Well, whether algos interpreted Spencer’s comments as hawkish (despite being a scenario analysis, rather than forward guidance) or human traders just forgot the November RBNZ statement (or something else entirely), the fact remains that Spencer’s speech triggered a bullish reaction on the Kiwi. That’s just how it is.

Moving on, Kiwi bulls tried to push the Kiwi even higher. However, the Kiwi’s price action became more mixed as sellers began jumping in, likely because risk aversion was the more dominant sentiment on Tuesday. Kiwi bulls put up a fight, though. And it probably helped that the most recent dairy auction resulted in the GDT price index rising by 0.4%.

Risk aversion persisted on Wednesday, though, so the Kiwi’s resilience began to crumble, causing the Kiwi to tilt to the downside on most pairs. Fortunately for Kiwi bulls, appetite for risk returned during Thursday’s U.S. session, so the Kiwi found support and even began trending higher on most pairs as risk-taking persisted on Friday.

The Kiwi would find late sellers on Friday, likely because of profit-taking. Although U.S. equities were also coming off their highs at the time, and the higher-yielding Kiwi may have just been taking directional cues from those.

Even so, Friday’s dip wasn’t able to keep the Kiwi down. Well, against most of its peers at least, since the Kiwi ended up losing out to the pound while having no fighting chance against the Greenback to begin with.