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. Were you able to profit from any of this week’s top movers?

Half of the top 10 movers are yen pairs, with the yen winning all the way, so yen domination was the main theme this week, although the Swissy wasn’t far behind. So what drove forex price action? And what about the other currencies? How did they fare? Time to find out!

By the way, if you’re focused on just a few currencies, you can skip to them by clicking on them below.

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 another good run and was even the best-performing currency of the week since bond yields plunged as bond-buying intensified, thanks to the severe risk aversion during the week, as evidenced by the bleedout in global equities.

  • Shanghai Composite (SSEC) closed 1.64% lower to 3,208.54 for the week
  • Hang Seng (HSI) closed 2.46% lower to 26,883.51 for the week
  • Japan’s Nikkei 225 (N225) closed 1.12% lower to 19,729.74 for the week
  • The Euro Stoxx 50 (STOXX50E) closed 2.99% lower to 3,402.70 for the week
  • The U.K.’s FTSE 100 (FTSE) closed 2.69% lower to 7,309.96 for the week
  • Germany’s DAX (GDAXI) closed 2.31% lower to 12,014.06 for the week
  • The DOW (DJI) closed 1.06% lower to 21,858.32 for the week
  • S&P 500 (SPX) closed 1.43% lower to 2,441.32 for the week
  • Nasdaq Composite (IXIC) closed 1.50% lower to 6,256.56 for the week

The feelings of gloom and (literal) doom this week all stem from jitters over North Korea, although North Korea has actually been a major part of the news cycle since last week when it successfully test launched an ICBM last Saturday, which ended up falling near Japan and made yen bulls jittery at the time.

And this week, the media outlets had a field day in churning out story after story related to North Korea. But unlike last week, where concern was focused on Japan’s security, the focus this week was the U.S. and it all started when the Washington Post published an article claiming that “North Korea [is] now making missile-ready nuclear weapons, U.S. analysts say.”

The market environment became rather skittish because of that, but risk aversion really ramped up when The Donald said the following in a presser:

“North Korea best not make any more threats to the United States.  They will be met with fire and fury like the world has never seen.”

“He has been very threatening beyond a normal statement.  And, as I said, they will be met with fire, fury, and frankly power, the likes of which this world has never seen before.”

That obviously conjured images like the one below and caused risk sentiment to sour like spoiled milk.

And it didn’t help that the KCNA, North Korea’s state news agency, delivered a warning (that used an amusing choice of words) to the U.S. by first claiming that North Korea is only acting in self-defense because:

“In the morning of August 8 the air pirates of Guam again appeared in the sky above south Korea to stage a mad-cap drill simulating an actual war. “

Typically, the nuclear strategic bombers from Guam frequent the sky above south Korea to openly stage actual war drills and muscle-flexing in a bid to strike the strategic bases of the DPRK. This grave situation requires the KPA to closely watch Guam, the outpost and beachhead for invading the DPRK, and necessarily take practical actions of significance to neutralize it.”

And below is the clincher that media outlets have been focusing on over and over throughout the week. By the way, the quote below is rather long because I also included the context as to why North Korea is threatening to strike Guam, since most media outlets forget to mention that for some reason.

“The KPA Strategic Force is now carefully examining the operational plan for making an enveloping fire at the areas around Guam with medium-to-long-range strategic ballistic rocket Hwasong-12 in order to contain the U.S. major military bases on Guam including the Anderson Air Force Base in which the U.S. strategic bombers, which get on the nerves of the DPRK and threaten and blackmail it through their frequent visits to the sky above south Korea, are stationed and to send a serious warning signal to the U.S.“

“The execution of this plan will offer an occasion for the Yankees to be the first to experience the might of the strategic weapons of the DPRK closest.”

“Explicitly speaking again, the strategic weapons which the DPRK manufactured at the cost of blood and sweat, risking everything, are not a bargaining thing for getting acknowledgement from others and for bartering for anything, but they serve as substantial military means for resolutely countering the U.S. political and economic pressure and military threat as what has been observed now.”

“It should immediately stop its reckless military provocation against the state of the DPRK so that the latter would not be forced to make an unavoidable military choice.”

The New Zealand Dollar

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

Like last week, the Kiwi got shot down and trampled yet again this week. This week’s beat-down was more severe, though, since the Kiwi found itself right at the very bottom of the forex heap.

As already mentioned earlier when we discussed the yen, risk aversion domination was the name of the game this week, and that almost certainly had a dampening effect on demand for the higher-yielding Kiwi. However, other sinister (if you’re a Kiwi bull) forces were at work this week and those were all related to monetary policy.

The Kiwi started the week on a weak footing as last week’s disappointing jobs report continued to weigh down on the Kiwi. But as noted in Monday’s morning London session recap and as marked in the chart earlier, the Kiwi started its slide after the RBNZ released its quarterly survey of expectations since that showed that inflation expectations deteriorated.

And that, plus New Zealand’s disappointing jobs report from last week, made many forex traders think that the RBNZ may switch its monetary policy bias from neutral to dovish.

Of course, we now know how the RBNZ statement went down. But if you somehow missed it, you can read Forex Gump’s write-up here, if you’re interested.

The short of it is that the RBNZ explicitly stated that it still has a neutral stance on monetary policy. Also, the RBNZ is still expecting to hike the OCR by late 2019. As a result, the Kiwi initially reacted positively to the RBNZ statement.

However, focus later switched back to the RBNZ’s stronger language on the Kiwi’s recent strength, particularly the following statement (emphasis mine):

“The trade-weighted exchange rate has increased since the May Statement, partly in response to a weaker US dollar. A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth.”

The Kiwi’s recent strength and its potentially negative effects on the economy was emphasized by RBNZ Assistant Gov’nah McDermott in an interview shortly after the RBNZ presser, wherein he said that the Kiwi “does need to adjust down,” which caused the Kiwi to weaken.

However, it wasn’t until after RBNZ Guv’nah Wheeler testified before the Finance and Expenditure Select Committee that the Kiwi began to really encounter heavy selling pressure since Wheeler said that “We [the RBNZ] do have intervention capability,” adding that “We’ve got a traffic-light system [for intervention] we have used that in the past; we constantly look at what our models suggest and where the exchange rate is, so that’s something that is always open to us.

Assistant Guv’nah McDermott, in another interview, was even more unabashedly explicit compared to Wheeler because he said outright that “It’s a subtle change of language; think about it as the first step” towards currency intervention, referring to the RBNZ’s stronger sense of urgency on the Kiwi’s strength.

Given the onslaught of jawboning from RBNZ officials (and intense risk-off vibes), it’s no surprise that the Kiwi got kicked even lower.

The Kiwi finally found a bottom across the board during Friday’s Asian session. There were no apparent catalysts, though. Also, risk aversion was still the name of the game at the time.

However, it’s highly probable that Kiwi bears were taking some profits off the table before the trading week ended and after two weeks of broad-based Kiwi weakness.

Also, the U.S. CPI report was scheduled for release on Friday, and market players were probably waiting for that to come out since Fed rate hike expectations were linked to inflation. And rate hike expectations, in turn, mean that that interest rate differentials will likely be in play.

Well, as it turns out, the U.S. CPI report disappointed (more on that when we discuss the Greenback), which caused expectations for a Fed rate hike to deteriorate. And that put interest rate differentials into play in favor of the Kiwi since the Kiwi was the main beneficiary of the disappointing U.S. CPI report. It also probably helped that risk sentiment improved a bit during Friday’s U.S. session.

The Swiss Franc

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

The Swissy was in consolidation mode last week. And this week, the Swissy finally stirred from its slumber and switched into rally mode since the Swissy trumped everything except the yen, thanks to the risk-off vibes.

Heck, the Swissy even initially had the advantage against the yen before losing that advantage come Thursday.

As to why the Swissy initially won out against the yen, there’s no clear reason for that, although it’s highly probable that Japan’s close proximity to North Korea made the Swissy more attractive as a safe-haven currency.

However, it became clear during the course of the week that North Korea has its sights on Guam, which probably eased fears that Japan may get nuked and enticed more yen bulls to later charge in and eventually overrun Swissy bulls.

By the way, the Swissy and the euro were dancing in tandem again, except for the major divergence on Wednesday, which is the day when North Korea released its warning about launching a pre-emptive strike against U.S. military assets in Guam as a deterrence against further provocation by the U.S. and in response to Trump’s “fire and fury” statement.

So, yeah, safe-haven flows really favored the Swissy at the time, so much so that the positive correlation between the euro and the Swissy were temporarily broken. That also reinforces the idea that the Swissy was initially the preferred safe-haven currency before the yen gained the upper hand.

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 the second worst-performing currency of the week after the Kiwi. And like the Kiwi, the higher-yielding Aussie was also likely down in the dumps partly because of the risk-off vibes this week.

Unlike the Kiwi, however, there were no major negative catalysts for the Aussie. Also, iron ore started the week on a strong note before becoming range-bound (while holding onto its gains) until Thursday, which very likely helped to limit the Aussie’s own losses.

Iron ore did tank rather hard on Friday, though, apparently because of a warning from the China Iron and Steel Association that the recent surge in iron ore prices is “not driven by market demand or reduced market supply.”

Even so, the Aussie’s losses were limited, strangely enough. One possible reason is that market players were hunkering down for the U.S. CPI report since Fed rate hike expectations and, by extension, interest rate differentials were linked to U.S. inflation.

And fortunately for the Aussie, the U.S. CPI report disappointed and risk sentiment improved a bit, so the higher-yielding Aussie caught a bid. Unfortunately for the Aussie, the damage was already done, so the Aussie ended the week off its lows but still a loser overall.

The Euro

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

If you didn’t skip the discussion on the Swissy, then you probably already know that the euro did well this week as well, which marks the second week of broad-based euro strength. And on first glance, it looks like the euro’s price action is rather chaotic, which implies that opposing currencies probably dictated price action on euro pairs

However, if we strip EUR/CHF and EUR/JPY, since the yen and Swissy got a major boost from the risk-off vibes, then we can see that price action on the euro was actually kinda uniform, although the aftermath of the RBNZ statement did do a number on EUR/NZD’s price action.

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

What you’ll notice (since I already marked them) is that the euro got slapped broadly lower during Tuesday’s U.S. session before climbing slowly but broadly higher during Thursday’s U.S. session.

Tuesday’s kick lower coincided with the U.S. JOLTS report while Thursday’s climb appears linked to the U.S. PPI report (more on those when we discuss the Greenback).

And these seem to reflect the euro’s reaction to last week’s NFP report, which means that euro pairs are still likely taking directional cues from EUR/USD.

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 had another rough week, losing out to everything except its fellow comdolls. There weren’t really any top-tier catalysts for the Loonie this week, so the Loonie’s overall weakness was likely due to another slide in oil prices.

And the slide in oil prices, in turn, was blamed by market analysts on renewed concern over the oil glut and fears that demand for oil would weaken since the global equities rout supposedly wiped out as much as $1 trillion.

  • U.S. WTI crude oil (CLG6) down by 1.63% to $48.77 per barrel for the week
  • Brent crude oil (LCOH6) down by 0.82% to $51.99 per barrel for the week

The U.S. Dollar

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

The Greenback followed up last week’s broad-based win with a more mixed performance this week, but still a net winner nonetheless.

The Greenback’s price action looks very chaotic, with diverging price action on some pairs. But if we strip away some pairs, then, well, the Greenback’s price action is still actually kinda chaotic. Sorry for leading you on like that.

Anyhow, we can safely conclude two things from the Greenback’s price action: (1) last week’s net positive NFP report reinforced but was not enough to sustain rate hike expectations and entice more Greenback bulls to jump in and (2) opposing currencies dictated price action on Greenback pairs, which means that (bonus) forex traders are still dazed and confused on the future direction of the Greenback after the July 26 FOMC statement.

And remember, I noted in last week’s weekly recap that the Greenback showed vulnerability to opposing currency price action before the NFP report gave the Greenback a bullish boost.

Speaking of the NFP report, there were other U.S. economic reports that were released during the week. And like the NFP report, they also had an immediate impact on the Greenback’s price action, which caused the Greenback to jolt like an unsuspecting bear getting zapped with a cattle prod.

Like a sleepy bear that just chowed down on the naughty human that zapped it with a cattle prod, however, the Greenback quickly went back into hibernation mode and became vulnerable to opposing currency price action again..

As for specifics on some of these economic reports that gave the Greenback a noticeable jolt in volatility, first up is the Job Openings and Labor Turnover Survey (JOLTS), which is a mid-tier report at best but somehow caused the Greenback to jump higher, probably because the reading for June came in at 6.16 million job openings, which is better than the expected 5.74 million and a fresh record high to boot.

Next, was the PPI report for July, which printed a disappointing 0.1% month-on-month decline for both the headline and core readings and kicked the Greenback lower, probably because some forex traders were beginning to worry that the CPI report would disappoint.

And, well, the CPI report for July did disappoint since it only printed a 0.1% month-on-month rise for both headline and core reading, which is a softer rise compared to the consensus of 0.2% for each.

Year-on-year, the headline reading also disappointed since it printed a 1.7% increase (+1.6% previous), which is a tick slower than the expected 1.8% increase. But on a happier note it did break four consecutive months of ever weaker annual readings. Also, the annual core reading maintained the 1.7% pace as expected.

Even so, rate hike expectations took an arrow to the knee, with odds for a December rate hike dropping from 43.7% to 35.9%, according to the CME Group’s FedWatch Tool.

Source: CME Group's FedWatch Tool
Source: CME Group’s FedWatch Tool

And as a result of the disappointment, the Greenback got slapped lower across the board as a knee-jerk reaction. However, signs of recovering sentiment and profit-taking apparently allowed USD/JPY and USD/CHF to recover from the drop. The same can’t be said for the other Greenback pairs, though.

The Pound Sterling

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

The Greenback is not the only one that had mixed priced action since price action on the pound was also a mess, with lots of diverging price action. As such, the pound was also vulnerable to opposing currency price action.

And looking at price action, the pound only barely lost out to the Greenback because the Greenback’s negative reaction to the CPI report wasn’t enough to allow GBP/USD to fully recover when GBP/USD dropped lower from the Greenback’s bullish knee-jerk reaction to the JOLTS report.

Anyhow, the mixed price action on the pound implies that forex traders are still mulling on the longer-term implication of last week’s BOE statement on the pound.

After all, the current narrative is that the market is skeptical about the BOE’s ability to deliver on a rate hike, which is why the pound tanked even though the BOE tried its best to sound hawkish.

Hopefully, we’ll get more uniform price action from the pound next week since the U.K.’s CPI report, jobs report, and retail sales report are scheduled for release next week.

Okay, here’s this week’s scorecard: