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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.

All eyes were on the Greenback because of the FOMC statement. However, half of the top 10 movers are Kiwi pairs, so Kiwi domination was actually the major theme this week.

So, what drove forex price action? How did the Greenback rank, by the way? And what about the other currencies? How did they fare and what drove them? 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 another good run and, like last week, was this week’s third best-performing currency.

The Greenback started the week on a strong footing, even though there were no direct catalysts. However, preemptive positioning on speculation of a more hawkish FOMC statement is a possibility since the odds for a December rate hike climbed from 52% to 57%, according to the CME Group’s FedWatch Tool.

Bullish momentum on the Greenback later lost steam come Tuesday, however, and the Greenback began to tilt broadly to the downside ahead of the FOMC statement.

Odds for a December rate hike hovered between 56% to 57% at this time, so lower rate hike expectations were not to blame. Economic data, meanwhile, were mixed, so the Greenback’s broad-based weakness was likely due to unwinding by some Greenback bulls ahead of the FOMC statement.

And when the FOMC statement finally rolled around, the Greenback initially tanked before quickly reversing course and surging higher across the board.

As usual, Forex Gump has the details on that, so read his write-up here. The gist of it all is that the Fed maintained its current monetary policy and downgraded its inflation forecasts, which is why the Greenback initially dropped.

However, the Fed remained optimistic and didn’t change its forecast for the Fed Funds Rate in 2017 and 2018, which means that the Fed is still on track for one more hike this year and three more hikes next year.

Moreover, the Fed’s “dot plot” showed that the number of Fed officials who won’t support another rate hike were unchanged at four, which means that the majority of Fed officials still support a rate hike.

And since the Fed remained optimistic while signaling that one more hike is still on the cards, with the majority of Fed members in favor of one more hike to boot, odds for a December rate hike soared to over 70%, which also naturally pushed the Greenback higher.

However, the Greenback’s price action became mixed after that, which means that the Greenback became vulnerable to opposing currency price action.

Even so, the Greenback’s gains on Monday and in the aftermath of the FOMC statement were enough to secure another broad-based win for the Greenback.

By the way, a lot of Fed Speakers are scheduled to speak next week, including Fed Head Yellen herself, so make sure to keep an eye on the Greenback.

The Euro

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

The euro had a reversal of fortune since it was one of the major losers last week but was this week’s second best-performing currency.

The euro had a shaky start but was clearly getting some demand by the time Monday’s U.S. session rolled around. There were no direct catalysts, but European bonds and shares of Portuguese companies were highly in demand at the time because of news over the weekend that ratings agency S&P raised Portugal’s rating from BB+ to BBB-, which means that Portugal’s credit rating became investment grade again after about five-and-a-half years. And the capital flows into the Euro Zone because of that very likely boosted the euro.

Moving on, the euro later steadied and then got a bearish slap when a Reuters report that cited “six sources” who have “direct knowledge of [the ECB’s] thinking” was released.

According to this report, “The strength of the euro is the number one problem,” which Reuters explained “is threatening to curb inflation in the euro zone by making its imports cheaper and exports dearer.”

And as such, ECB officials are supposedly split, “on whether to set a definitive end-date for their money-printing program when they meet in October, raising the chance that they will keep open at least the option of prolonging it again” as Reuters puts it.

This is actually similar to what ECB’s Coeure and others said last week, which is probably why there was no follow-through selling and the euro continued to trade roughly sideways on most pairs.

However, the euro later began to tilt to the downside ahead of Wednesday’s FOMC statement. There was no clear reason for the euro’s broad-based weakness, though, and most market analysts simply ignored this wonky price action.

The few market analysts who tried to explain the euro’s weakness at this time were mostly blaming the euro’s weakness on the Reuters report that I mentioned earlier. To be more specific, they were referring to the following comment from one of the unnamed sources:

“The main source of uncertainty has to do with U.S. economic policy: to what extent will they be able to deliver.”

Well, whatever the case may be, the fact still remains that euro pairs, with the exception of EUR/USD, were on the back foot at the time and EUR/USD would join up later when it slumped in the wake of the FOMC statement.

After that, the euro stabilized and then began to climb higher during Thursday’s Asian session. There were no apparent catalysts but it’s likely that some euro shorts were unwinding their positions ahead of Draghi’s speech. It’s also possible that some forex traders were opening preemptive positions ahead of Friday’s PMI reports.

Speaking of Draghi’s speech, it was a nothing burger since Draghi didn’t really talk about monetary policy, but he did say that the Euro Zone’s financial system “poses fewer risks to the real economy.” Draghi also didn’t try to talk down the euro.

The euro’s price action then became a bit mixed when Friday’s Asian session rolled around before jumping during the London session when Markit released its latest batch of PMI reports.

The PMI readings were able to beat expectations, with the manufacturing PMI report for the Euro Zone as a whole being really impressive since it jumped from 57.4 to 58.2, which is 79-month high.

Even so, there was little follow-through buying. In fact, the euro encountered selling pressure later and ended up mixed for the day, which is why I mentioned earlier that preemptive buying ahead of the PMI reports was a possible reason for the euro’s strength on Thursday.

Of course, it’s also possible that the euro’s rally on Thursday was just due to expectations that Merkel’s CDU/CSU will win in this Sunday’s German Federal election.

Moreover, Draghi had a Q&A session at around that time and he commented that inflation rates “are not there” yet. Although this is not really new since Draghi has been saying that in the past ECB statements.

In any case, the euro’s rallies on Monday, Tuesday, and Thursday were able to offset most of the euro’s losses on Wednesday, which enabled the euro to score victories against most of its rivals.

The Pound Sterling

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

The pound had a mixed performance this week after last week’s monster moves.

But just because the pound’s performance this week was mixed, doesn’t mean that price action was also mixed since pound pairs did show some semblance of uniformity, as you probably saw in the overlay of GBP pairs earlier.

Having said that, the pound had a choppy start but began to weaken ahead of BOE Guv’nah Mark Carney’s speech and then dropped sharply lower when Carney did speak.

Carney talked about a lot of things and he affirmed the BOE’s hiking bias, but what really grabbed the attention of most traders were the following comments:

The case for a modest monetary tightening is reinforced by the possibility that global rates may be rising, meaning that monetary policy has to move in order to stand still.

“Any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent, and to be consistent with monetary policy continuing to provide substantial support to the economy.”

In short, one of the main reasons for the BOE’s hawkish bias is that most of the other central banks are on (or will soon be on) a tightening cycle and the BOE doesn’t want to get left behind.

Also, the BOE is only looking for a “modest” and “limited” tightening, which seems to go against BOE Member Vleighe’s comment from last week that suggested that the BOE will soon be on a tightening cycle. Here’s Vlieghe’s comment again:

It’s obviously more than unwinding last August (when the BoE cut rates). We are making that judgment over a three-year period, so it will depend on how the data evolves.”

Anyhow, Carney’s comments were viewed as being less-hawkish-than-expected, which is likely why the pound got hammered down and continued to get some selling pressure on most pairs until Tuesday.

The pound later found support on Wednesday and then jumped higher as a reaction to the better-than-expected August retail sales report, since the headline reading printed a 1.0% month-on-month surge, which is the strongest in four months and is much better than the +0.2% consensus.

The year-on-year reading was also impressive since retail sales increased by 2.4%, which is double the consensus reading of 1.2%.

And it gets even better because the core reading also impressed by printing a 1.0% month-on-month increase and a very solid 2.8% increase.

However, selling pressure quickly returned and tried to send the pound lower. There was no clear reason why, but unwinding by some pound longs ahead of the FOMC statement is a possibility.

Despite returning selling pressure, follow-through buying was more persistent, and so the pound steadily climbed higher on most pairs.

The pound then got a bullish infusion come Thursday, which market analysts attributed to speculation that British PM Theresa May would be more open to a “soft” Brexit on Monday after a BBC report cited an unnamed “cabinet source” as saying that Theresa May will given an “open and generous” offer to the E.U. during her Friday speech.

Sadly, Theresa May’s actual speech didn’t really give a lot of details, which disappointed traders, market analysts say. And so the pound got slapped lower across the board. Although the pound did find support later when the E.U.’s Barnier reacted to May’s speech by saying that “Theresa May has expressed a constructive spirit which is also the spirit of the European Union.

However, a parting shot came from out of nowhere, and just before the market closed for the week, when Moody’s announced that it downgraded the U.K.’s credit rating from Aa2 to Aa1 and its outlook from “stable” to “negative” because of the following reasons:

“The outlook for the UK’s public finances has weakened significantly since the negative outlook on the Aa1 rating was assigned, with the government’s fiscal consolidation plans increasingly in question and the debt burden expected to continue to rise”

“Fiscal pressures will be exacerbated by the erosion of the UK’s medium-term economic strength that is likely to result from the manner of its departure from the European Union (EU), and by the increasingly apparent challenges to policy-making given the complexity of Brexit negotiations and associated domestic political dynamics.”

Anyhow, only mid-tier U.K. economic reports (at best) are lined up for next week. Carney will be speaking again next week, though, and he may change his tune.

BOE Member Broadbent is also scheduled to speak. Broadbent switched to the dovish camp back in July and forex traders may be interested to see if he has had a change of heart since then.

However, Brexit negotiations are expected to resume on September 26, with Theresa May and Tusk tentatively scheduled to meet, so there’s also a chance that traders may be more focused on Brexit-related drama.

The Swiss Franc

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

The euro was the second best-performing currency of the week while the Swissy was the second worst-performing currency of the week. Does this mean that the euro and the Swissy are no longer dancing in tandem?

Well, no. Just look at the sample pairs below and check your own charts if you still can’t believe it.

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 prevalence of risk appetite (and possible SNB meddling) may have helped to dampen the Swissy’s strength this week. However, I’m more inclined to think that it was demand for the euro that gave the euro the winning edge. To be more specific, the strong demand for the euro on Monday and Tuesday, as well as the strange euro rally on Thursday.

If you look at the sample pairs above, the Swissy also gained strength on Monday, even though risk-taking was the name of the game at the time.

The euro was then able to maintain its strength come Tuesday and even held its ground against the Kiwi for a while. However, the Swissy was already showing signs that it wasn’t able to keep up.

The Swissy and the euro then suffered as much on Wednesday, but the euro was able to recover far more quickly than the Swissy on Thursday.

This strong demand for the euro on Monday, Tuesday, and Thursday can also be seen on EUR/CHF’s price action. The euro even gained strength against the Swissy in the runup to the PMI reports only to start giving those gains back when the PMI reports were released, which supports my hypothesis that the weird euro rally on Thursday was driven partly by preemptive positioning ahead of the PMI reports.

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

There were rumors over the weekend that Japanese Prime Minister Shinzo Abe may hold a snap election on October and that apparently caused the yen to gap lower against most of its rivals when the new trading week opened.

And things didn’t really get any better for the yen because bond yields were higher this week and risk-taking prevailed for the most part, so the yen got another good bashing and was this week’s third worst-performing currency.

Interestingly enough, the yen didn’t really track bond yields that closely and price action on yen pairs was actually a bit messy, which means that yen pairs were also vulnerable to opposing currency price action.

This is especially true on Wednesday when bond yields surged because of the FOMC statement but only USD/JPY followed the surge in bond yields while the other yen pairs went their own way.

There was no clear reason for the lack of uniform interest on the yen. And needless to say, most market analysts chose to just ignore this wonky price action.

However, caution ahead of the BOJ statement is a possibility, just in case the BOJ says something new or decides to scrap their so-called “QQE With Yield Curve Control” framework or something unexpected like that.

Unfortunately, the BOJ maintained its current monetary policy, and so the BOJ statement was a total dud. By the way, Forex Gump has a write-up on that. You can read his write-up here, if you’re interested for some reason.

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 this week’s biggest loser so the Loonie’s winning streak is now officially over.

Interestingly enough, oil benchmarks actually closed higher this week, but that didn’t seem to have an effect on the Loonie. But then again, I pointed out last week (and in the past few weeks) that the Loonie’s correlation to oil prices appears to have weakened.

  • U.S. crude oil up (CLG6) by 1.50% to $50.64 per barrel for the week
  • Brent crude oil up (LCOH6) by 2.12% to $56.80 per barrel for the week
Overlay of CAD Pairs: 1-Hour Forex Chart
Overlay of CAD Pairs: 1-Hour Forex Chart

Anyhow, the Loonie has a mixed start before getting kicked lower across the board when BOC Deputy Governor Timothy Lane gave a speech during Monday’s U.S. session.

Lane’s speech was actually upbeat since he praised the recent developments in the Canadian economy, such as growth “becoming more broadly based and self-sustaining” and the “widespread strength in business investment and exports.”

However, he also pointed out that a stronger Loonie is bad for exports before saying that:

“We will be paying close attention to how the economy responds to both higher interest rates and the stronger Canadian dollar.”

He then repeated his warning that a stronger Loonie is bad for exports when he said near the end of his speech that:

“[F]or much of the past decade, a strong Canadian dollar—battered many of our export industries and splintered their supply chains.”

And in the Q&A session that followed, Lane reiterated that the BOC has its eyes on the Loonie and that a stronger Loonie will affect monetary policy when he said the following:

Now as the Canadian dollar is strengthening, we’re certainly watching that closely and we’ll be taking that into account pretty strongly in making our decisions.

All that talk about the Loonie’s negative effect on exports and the prospects for future rate hikes apparently caused the Loonie to tank hard as a knee-jerk reaction and follow-through selling kept the Loonie down until Wednesday, since price action on the Loonie became a bit more mixed then.

The Loonie’s price action on Thursday and half of Friday was also mixed before getting kicked broadly lower again when Friday’s U.S. session rolled around, thanks to Canada’s CPI and retail sales reports.

Canada’s July retail sales report revealed that headline retail sales value actually increased by 0.4% month-on-month, which is better than the +0.2% expected. However, the stronger headline reading was due to higher sales from vehicles and parts dealers.

A closer look at the details of the retail sales report shows that 5 of the 10 remaining retail store types were reporting declines in sales, which is why the core reading only increased by 0.2%, which is below the consensus for a 0.4% increase. Moreover, the previous core reading was downgraded from +0.7% to +0.4%, which doubles the disappointment.

As for Canada’s August CPI report, the headline readings came in at +0.1% month-on-month and +1.4% year-on-year, missing their respective consensus readings of +0.2% month-on-month and +1.5% year-on-year, which is naturally disappointing.

However, two of the BOC’s three preferred measures for underlying inflation ticked higher, which should support rate hike expectations.

Even so, follow-through buying never materialized, probably because the combined weight of the disappointing core retail sales reading and headline CPI readings, plus Lane’s earlier warning about the stronger Loonie, were just too much for buying pressure to overcome.

Anyhow, the Loonie’s broad-based weakness on Monday and Tuesday, as well as on Friday, effectively sealed the Loonie’s fate and finally ended its winning streak.

And since the Loonie now appears to be driven mainly by BOC rhetoric and data, make sure to keep tabs on the Loonie next week since BOC Boss-Man Poloz is scheduled to speak on Wednesday next week while Canada’s monthly GDP report is scheduled for release on Friday.

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 had another mixed week, but this time, the Aussie was a net winner. With that said, I noted last week that the Aussie no longer appears to be tracking iron ore prices as closely. And that also appears to be the case this week, at least from Monday to Wednesday.

As to what drove the Aussie, that seems to be a cocktail of general trend in commodities, interest rate differentials, and specific events, including one that’s meant for the Kiwi.

The general trend in commodities was in play from the get-go when a stronger Greenback caused most commodities to tank on Monday, which also apparently weighed on the Aussie.

Iron ore did dip a bit during Monday’s morning London session but was higher for the day. But then again, most base metals were broadly in demand at the time, apparently because of bargain-buying after last week’s selloff.

Iron ore got crushed on Tuesday, but a weaker U.S. dollar reinvigorated demand for other commodities and the Aussie was apparently taking cues from the general trend in commodities because the Aussie opted to track other commodities higher.

The RBA released the minutes of its latest meeting at this time and, well, the Aussie tossed and turned but it was mostly a dud since it didn’t really provide any clear insights on the future direction of monetary policy. The minutes did note that there was “some expectation of an increase in the cash rate by mid 2018,” but this was based on financial market pricing and therefore not forward guidance. Also, the RBA took the opportunity to talk down the Aussie again when it reiterated that:

“The appreciation of the Australian dollar over recent months, driven in part by a broad depreciation of the US dollar, was weighing on domestic growth and contributing to subdued inflationary pressure. A further appreciation of the Australian dollar would be expected to result in a slower pick-up in growth and inflation.”

Even so, most commodities were in rally mode and so the Aussie continued to trend higher.

Commodities continued to trend higher on Wednesday. However, the Aussie hesitated on most pairs during Wednesday’s Asian session before jumping higher and then continuing its uphill trek when the latest 1 NEWS Colmar Brunton poll was released showing that the National Party had a big lead against Labour.

It may seem weird that the Aussie would react to a news event meant for New Zealand, but it should be understood that the National Party is viewed as being more business-friendly and represents the status quo to boot.

And since Australia is New Zealand’s second largest export market and New Zealand is a major Australian export market, it also follows that what’s good for New Zealand businesses is also good for Australian business.

Anyhow, the Aussie’s strength finally began to run out in the wake of the FOMC statement, since rejuvenated prospects of a Fed rate hike put interest rate differentials into play in favor of the Greenback and at the expense of the Aussie.

Also, the Greenback’s strength in the wake of the FOMC statement triggered a broad-based commodities rout and those two factors weighed on the Aussie.

The Aussie was still putting up a good fight, however, but signs of organized resistance finally collapsed when RBA Boss Lowe spoke. Lowe’s actual speech wasn’t really market-moving. However, Lowe’s comments during the Q&A session were market-moving because Lowe said that More likely it [RBA’s cash rate] will go up but it’s not for some time,” which is a subtle way of saying that “the RBA ain’t joining the tightening crowd just yet.”

The Aussie then encountered further selling pressure when S&P Global Ratings announced that it downgraded China’s credit rating from A+ from AA-.

After that intense bout of selling, the Aussie stabilized and then recovered a bit on Friday, as commodities recovered, although profit-taking by Aussie shorts to avoid a weekend risk is also a possibility.

The damage from Thursday’s intense weakness was severe, however, and so the Aussie, which was the second strongest currency until Wednesday, closed out the week mixed (but still a net winner).

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 by ending this week higher across the board. In fact, the Kiwi was the best-performing currency of the week, as well as the most volatile.

Like the Aussie, the Kiwi was tracking commodities during the week. However, the Kiwi quite naturally had a stronger reaction to the 1 NEWS Colmar Brunton poll that gave the National Party a big lead against Labour.

And like the Aussie, the Kiwi began to take hits in the wake of the FOMC statement, as interest rate differentials and sliding commodity price came into play.

However, the Kiwi’s losses were limited. And that was likely because New Zealand’s GDP report (0.8% as expected, 0.6% previous) acted as a shield to lessen the Kiwi’s damage.

Most market analysts conclude that New Zealand’s GDP report was either a dud or the Kiwi’s reaction was weird. However, I think that the GDP report helped to shield the Kiwi. In fact, if you look at AUD/NZD’s price action, the Kiwi began to trade higher against the Aussie on Thursday after New Zealand’s GDP report was released and before Lowe even got a chance to speak.

However, New Zealand’s GDP report wasn’t able to muster enough bulls, and that was likely because the +0.8% reading, while stronger than the previous quarter, missed the RBNZ’s forecast of +0.9%.

Speaking of the RBNZ, the RBNZ statement is coming up next week, so there’s a good chance that we’ll get more action from the Kiwi. There’s no presser, however, so price action related to the RBNZ will likely be limited.

Also, do note that the National Party won the most votes in the election. However, National wasn’t able to secure the necessary 61 seats for a majority government. It’s therefore likely that the Kiwi may get kicked around by New Zealand politics next week as National seeks to form a coalition government with New Zealand First while Labour and the Greens try to get in their way.