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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.

There were a ton of top-tier events this past week, with EUR, GBP, and USD in focus.

However, the Kiwi and the Aussie apparently stole the spotlight since half of this week’s top 10 movers are NZD pairs and the other half are AUD pairs.

And both comdolls were on the winning side, although you’ll see later (or if you peeked at the scoreboard) that the Kiwi outpaced the Aussie and was the one currency to rule them all this past week.

Anyhow, what drove NZD and AUD higher during the trading week? And what about the other currencies? How did their price action turn out? Time to 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

The Greenback had a mixed performance this week, but that doesn’t mean that the Greenback was vulnerable to opposing currency price action since price action across Greenback pairs was uniform for the most part.

The Greenback had a steady start but caught a bid when it was revealed that U.S. producer prices rose 3.1% in November, which is its fastest pace of increase since January 2012 and likely raised expectations that CPI would also impress.

However, the Greenback began tilting to the downside later when Senatorial elections in Alabama went underway.

And when it was announced later that Democrat Doug Jones won the Senatorial race, the Greenback found even more sellers since the upset victory would make it more difficult for Trump to push through with this tax agenda (among others).

The Greenback got bushwhacked by even more sellers later when U.S. core CPI failed to impress (0.1% vs. 0.2% expected) ahead of the FOMC statement.

And when the Fed finally delivered on a widely expected rate hike, the Greenback found even more pain likely because, as I highlighted in Wednesday’s U.S. session recap, outgoing Fed Head Yellen was a bit cautious and less optimistic compared to her peers. Also, Yellen divulged that most Fed members have taken the tax reform bill into account but heavily implied that tax reforms won’t lead to more aggressive hikes when she said the following:

“We continue to think as you can see from the projections that a gradual path of rate increases remains appropriate even with almost all participants now factoring in their assessment of the impact of the tax policy.”

Anyhow, the Greenback’s price action became mixed and pretty much range-bound after the FOMC statement and presser before finding buyers again when Friday’s U.S. session rolled around as word got around and hopes began to rise that the Republicans would be able to finalize the tax reform bill and push it for voting by next week.

And we now know that the Republicans were successful in finalizing the tax reform bill. You can read this Reuters Factbox if you want to read up on the breakdown of the specific provisions.

Anyhow, the Greenback’s slide on Wednesday and later recovery on Friday is the reason why the Greenback had a mixed performance this week despite having uniform price action.

And again, Trump wants to sign the tax reform bill into law before the year ends and the two chambers of the U.S. Congress are expected to vote on the tax reform bill next week, so this ride ain’t over yet.

The Euro

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

The euro’s price action was disappointingly uneventful since most EUR pairs were essentially range-bound for the week. There were some euro pairs that were on the move, namely EUR/NZD, EUR/AUD, and (to a lesser extent) EUR/JPY, but they were clearly driven by opposing currency price action.

Still, the euro did end up as a net loser this week, and that was due mainly to the broad-based selling pressure in the wake of the ECB’s presser.

Well, the euro tried to jump higher at first since the ECB upgraded its growth and headline HICP projections.

However, euro bulls quickly gave up and euro bears rushed in, apparently as a response to ECB Overlord Draghi stressing during the Q&A portion that “the forward guidance on interest rate is unchanged” and that “there isn’t any change in the language or intentions” on the ECB’s easing bias on its QE program.

Draghi then hammered home the message that monetary policy ain’t budging anytime soon when he said the following:

We say price pressures remain muted and have yet to show convincing signs on a sustained upward trend. So the conclusion is: an ample degree of monetary stimulus therefore remains necessary for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term. So, no change all throughout.

Moving on, the euro saw broad-based buying pressure later on Friday. There weren’t really any apparent catalysts, which is why I opined in Friday’s London session recap that the euro bears may have been covering their shorts.

Bears returned later, however, apparently because of news that the Social Democratic Party of Germany (SPD) has formally agreed to talks with Angela Merkel in order to form a government since SPD Leader Schulz stressed that talks will be open (i.e. no promises).

Also, Schulz made clear his intentions when he said that:

We won’t just keep doing as we’ve been doing now and there won’t be a continuation of the grand coalition we’ve had until now in the form that we knew it.

Moreover, talks aren’t expected to start until January next year and the earliest that the SPD can vote on a deal with Merkel is on January 14, which means prolonged political uncertainty in Germany. And that’s likely why the euro reacted negatively.

The Pound Sterling

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

C-c-c-c-c-ombo breaker!

After being a net winner for five consecutive weeks, the mighty pound finally saw its downfall. Well, more like a bloody nose really since the pound’s price action was rather unimpressive and weekly % changes were relatively small, despite a ton of top-tier events.

Having said that, the pound showed weakness right from the start. There were no apparent catalysts on Monday, but profit-taking by pound bulls is a possibility since the most recent COT report for the week ending on December 12 showed that large players unloaded 6,659 long GBP contracts after adding 22,721 long GBP contracts during the week ending on December 5.

The pound’s broad-based slide finally steadied (except against NZD and AUD) starting on Tuesday and the pound even began to tilt to the upside by Wednesday, likely because of the U.K.’s stronger-than-expected November CPI reading (3.1% vs. steady at 3.0% expected).

Also, I mentioned in Wednesday’s London session recap that the latest jobs report showed that regular earnings rose by 2.4% in October, which is the strongest in 10 months and is better than the BOE’s 2.2% forecast to boot.

The pound received its final bullish boost on Thursday when the U.K.’s retail sales report surprised to the upside (1.1% vs. 0.4% expected, 0.5% previous).

Sadly for pound bulls, the BOE later announced its monetary policy decision. And instead of sounding more hawkish because of the recent string of stronger-than-expected economic reports, the BOE opted to sound cautious when it noted the following:

“[I]t is too early to arrive at a comprehensive view of the effect of November’s rise in Bank Rate on the economy.

“Any future increases in Bank Rate were expected to be at a gradual pace and to a limited extent.”

And even though inflation has been running way above the BOE’s 2.0% target for 10 months running now, the BOE also weakened expectations for future rate hikes to control inflation when the BOE noted that:

“MPC continued to judge that inflation was likely to be close to its peak, and would decline towards the 2% target in the medium term.”

Also, the BOE just shrugged off the stronger retail sales report when it commented that:

“Domestically, some activity indicators had suggested GDP growth in Q4 might be slightly softer than in Q3.”

In short, the BOE statement was a total killjoy for rate hike junkies, so it’s quite understandable why the pound’s weak recovery stalled and the pound even encountered sellers on some pairs.

The pound’s suffering only intensified later on Friday when European Council President Donald Tusk brought the good news (for Brexit talks) below:

Again, that’s good news for Brexit talks. Instead of jumping higher, however, the pound got hit by wave after wave of sellers, likely because European leaders bluntly stated their opinions that the next stage of Brexit talks will be even tougher.

And that may have prompted some profit-taking because, as mentioned at the start, the pound has been a net winner for five consecutive weeks before this week’s tumble, largely because of expectations that Brexit talks will be cleared for Phase 2 during this week’s Euro Summit.

The Swiss Franc

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

As usual, the euro and the Swissy were dancing mostly in tandem. But as you can see in the sample pair below, however, there were two clear instances of decoupling.

CHF/JPY (red) vs.  EUR/JPY (black): 1-Hour Forex Chart
CHF/JPY (red) vs.  EUR/JPY (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
AUD/CHF (inverted, red) vs.  EUR/AUD (black): 1-Hour Forex Chart
AUD/CHF (inverted, red) vs.  EUR/AUD (black): 1-Hour Forex Chart

The first instance happened during Tuesday’s U.S. session since the euro was steady while tilting mostly to the downside while the Swissy caught a bid despite the prevalence of risk appetite.

The most likely reason for this decoupling is that Senatorial elections were underway in Alabama, which may have spurred demand for the safe-haven Swissy, allowing the Swissy to fight off the risk-on vibes in other markets and decouple from the euro.

Moving on, the other instance of decoupling occurred on Thursday since the Swissy started weakening before the euro did, apparently as a reaction to the SNB statement because, as noted in Thursday’s London session recap, the SNB acknowledged that “the Swiss franc has weakened further against the euro and, more recently, has also depreciated against the US dollar.”

However, the SNB still thinks that the Swissy “remains highly valued,” adding that “renewed appreciation would still be a threat to price and economic developments.”

Also, SNB Boss-Man Jordan killed expectations for future hikes when he bluntly stated that:

It’s still early, very early, to talk about normalization at the Swiss National Bank.

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 overlay of inverted JPY pairs above already excludes NZD/JPY and AUD/JPY since their price action was dominated by the Kiwi and the Aussie respectively.

With that said, the safe-haven yen finished in third place this week, even though most of the major global equity indices closed out the week with gains, which strongly suggests that risk-taking was the dominant sentiment this week.

And as usual, we can point to bond yields for that since bond yields plunged hard ahead of and in the wake of Wednesday’s FOMC statement.

Interestingly enough, bond yields climbed on Monday and Tuesday but the yen held its ground instead of weakening. And the likely reason for this is safe-haven demand for the yen because of a  terrorist attack in New York City on Monday and political uncertainty related to the Alabama Senatorial elections on Tuesday.

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 had a repeat performance this week because, just like last week, the Loonie was the third worst-performing currency of the week.

The Loonie’s poor performance this week can be blamed on the Loonie’s reluctance to ride the surge in oil prices on Monday, the Loonie’s openness to take directional cues from oil whenever oil prices dipped, Poloz’s dovish speech, which contradicted his earlier hawkish speech, and Canada’s disappointing manufacturing sales report.

There’s no clear reason for the Loonie’s steady price action on Monday despite the surge in oil prices. And market analysts only stated the obvious when they pointed out on Monday that the Loonie was steady ahead of the FOMC statement and BOC Boss-Man Poloz’s scheduled speech.

Speaking of Poloz’s scheduled speech, it caused the Loonie to surge higher because Poloz had this hawkish message (emphasis mine):

[T]he economy has made tremendous progress over the past year, and it is close to reaching its full potential. We are very encouraged by this, and we are growing increasingly confident that the economy will need less monetary stimulus over time.

In other words, more rate hikes to come, provided the Canadian economy continues to strengthen.

However, in a CNBC interview a few hours after his speech, Poloz degraded his earlier hawkish message and caused the Loonie to tumble when he said that (emphasis mine):

What we want is for the economy to grow hotter for a while, so that it uses up that excess capacity that is still in the labor market. And the way that will happen is companies will invest more, create new capacity, with more people, and raise our level of GDP.

In short, no more rate hikes for a while. Fortunately for the Loonie, oil was rising at the time, so the Loonie’s losses were limited.

Unfortunately for the Loonie, Canada’s manufacturing sales report later revealed a 0.4% month-on-month contraction, severely missing the consensus for a 0.9% increase and ending two consecutive months of increases to boot.

The Loonie’s bearish reaction to the disappointing reading was unusually strong, however, so it’s also possible that traders were disappointed to know on Friday that NAFTA talks didn’t really make any progress.

Incidentally, the Loonie’s Friday slump sealed the Loonie’s fate since the slide resulted in the Loonie returning its gains against the Swissy and the U.S. dollar while barely clinging on to its gains on the euro.

Anyhow, we’ll hopefully get stronger directional movement from the Loonie next week since Canada’s CPI, monthly GDP, and retail sales reports are all on the docket. Although there’s a chance that they might be duds given Poloz’s forward guidance this week that the BOC wants “the economy to grow hotter for a while” before hiking again.

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

The Aussie was on the receiving end of a painful beat-down last week. This week, however, the Aussie was the one that dished out most of the beating since it was the second strongest currency after the mighty Kiwi.

Gold bounced higher this week after getting hammered last week and (as usual) the Aussie was taking directional cues from gold.

But as you probably saw in the overlay of AUD pairs, however, the bounce in gold prices doesn’t tell the whole story on the Aussie’s price action since Australia’s strong November jobs report also had a role to play in propelling the Aussie higher.

The impact of Australia’s jobs report can be most clearly seen on AUD/NZD’s price action since the jobs report forced the Kiwi to surrender a large chunk of its gains to the Aussie.

Other than that, risk sentiment also played a role (as usual). This can be clearly seen when risk-taking dominated on Monday and Tuesday and the higher-yielding Aussie caught a bid and was resistant to dips, even as gold prices tilted to the downside.

Anyhow, the Australian Treasury has announced that it will be releasing its updated forecasts this coming Monday. We also have the RBA’s meeting minutes to look forward to next Tuesday, so hopefully we’ll get more action from the Aussie next week.

The New Zealand Dollar

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

The Kiwi followed up last week’s broad-based win with a very complete and very crushing victory since the Kiwi just steamrolled its forex rivals (AUD did put up a fight, though) and Kiwi pairs saw the biggest weekly % changes to boot.

And Kiwi bulls can thank Adrian Orr’s appointment as the new RBNZ Chief on Monday since Orr is largely seen as a continuation of the RBNZ’s policies, which removes some uncertainty after Ex-Guv’nah Wheeler’s term expired back in September of this year.

Also, some market analysts say that Orr’s appointment encouraged speculation that Orr may be a tad more hawkish compared to his predecessor when it comes to hiking rates in order to keep inflation in check.

Interestingly enough, however, the most recent COT report for the week ending on December 12 shows that speculative positioning by large players on Kiwi futures were rather minimal. In fact, Kiwi longs were pared by 417 contracts while shorts on the Kiwi increased by 118 contracts. Hedging activity by commercial traders also showed that short contracts on the Kiwi rose by 8,112.

That doesn’t stop market analysts from claiming that the Kiwi’s rise was fueled by short-covering in the wake of Orr’s appointment, however.

Anyhow, Orr’s appointment was cited by practically everybody as the reason for the Kiwi’s steady rise from Monday to Wednesday. Although risk sentiment also very likely helped to prop up the higher-yielding Kiwi since risk appetite was the dominant sentiment until Wednesday.

The Kiwi’s rally finally showed signs of fatigue a few hours before the New Zealand Treasury revealed its Half Year Economic and Fiscal Update (HYEFU). And when that was finally revealed, the Kiwi tossed and turned for a while but bears were clearly winning out, likely because the Treasury downgraded New Zealand’s GDP growth forecast to reflect the new Labour-led government’s policies, particularly the ones against foreign residential investment.

  • 2018 GDP: downgraded from 3.4% to 3.0%
  • 2019 GDP: downgraded from 3.7% to 3.6%
  • 2020 GDP: downgraded from 2.7% to 2.6%
  • 2021 GDP: downgraded from 2.2% to 2.1%

The Kiwi finally regained its mojo during the Thursday’s late U.S. session/ Friday’s early Asian session. Risk-taking initially prevailed but risk aversion did return later during Friday’s late Asian and early morning London session, but the Kiwi just marched steadily higher, so optimism with regard to Orr’s appointment may have helped to push the Kiwi higher. Well, that was the most common narrative presented by market analysts at least.

And when appetite for risk made a comeback during the U.S. session, the Kiwi dipped across the board  instead of getting a boost, which suggests profit-taking by Kiwi bulls.

It makes one wonder if the Kiwi will continue trending higher next week, huh? And all the more so, given that New Zealand’s GDP report, trade report, and another dairy auction are on next week’s schedule.