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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.

Kiwi and Aussie bashing were major themes this week. But did you also know that Swissy strength was a theme as well? So, what drove forex price action? And what about the other currencies? How did they fare this week?

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 was a net winner again this week, which marks the third consecutive week of net wins for the Greenback.

And as marked in the overlay of USD pairs above, the Greenback captured the bulk of its gains on Tuesday and Wednesday before giving back some of its gains on Thursday and then having a more mixed performance on Friday.

And market analysts attributed the Greenback’s rally on Tuesday and Wednesday to the renewed faith in the “Trump Effect” or “Trumponomics” or “Trumpflation”, thanks to Trump’s unveiling of his new tax plan on Wednesday.

To be a bit more precise, speculation on Trump’s tax plan drove the Greenback higher because the Greenback barely reacted when Trump actually talked about his tax plan. Also, follow-through demand for the Greenback after Trump’s speech was only limited.

As for a quick rundown on Trump’s new tax proposal, he plans to reduce the tax brackets from seven to just three (12%, 25% and 35%) and the standard deduction would be doubled to $24,000 for married couples and $12,000 for single filers.

Trump also proposed that the child tax credit will be increased from $1,000 to an unspecified but “substantially higher” amount.

As for cuts on business taxes, Trump proposed slashing them from 35% to 20%, which is higher than his promise to slash them to 15%, as laid out in his original tax reform plan.

Interestingly enough, Fed Chair Yellen gave a speech on Tuesday and her speech caused the Greenback rally to temporarily halt because she said that:

“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.”

Given the above, Yellen concluded that (emphasis mine):

“In my view, it strengthens the case for a gradual pace of adjustments. Moving too quickly risks overadjusting policy to head off projected developments that may not come to pass. A gradual approach is particularly appropriate in light of subdued inflation and a low neutral real interest rate, which imply that the FOMC will have only limited scope to cut the federal funds rate should the economy be hit with an adverse shock.”

However, Yellen was quick to add that (emphasis mine):

“But we should also be wary of moving too gradually. Job gains continue to run well ahead of the longer-run pace we estimate would be sufficient, on average, to provide jobs for new entrants to the labor force. Thus, without further modest increases in the federal funds rate over time, there is a risk that the labor market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession. Persistently easy monetary policy might also eventually lead to increased leverage and other developments, with adverse implications for financial stability. For these reasons, and given that monetary policy affects economic activity and inflation with a substantial lag, it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent.”

In short, there are lots of uncertainties, but the Fed is still in a tightening cycle, albeit at a “gradual pace,” which is probably why rate hike expectations didn’t really get hit and the Greenback resumed its upward push after hesitating for a bit.

Getting back on topic, the Greenback’s rally fizzled out a few hours after Trump’s tax plan speech. And by Thursday, the Greenback was already broadly in retreat, even though there were no apparent catalysts. Heck, the final estimate for U.S. Q2 GDP growth even got upgraded from +3.0% quarter-on-quarter annualized to +3.1%, but that didn’t really stop the Greenback’s slide.

As to why the Greenback was in retreat, market analysts attributed that profit-taking to avoid weekend risk, as well as month-end and quarter-end flows.

After all, hedge funds, mutual funds, pension funds, and other large players usually reposition/rebalance their portfolios and/or prepare to make cash distributions at the end of the trading month/quarter.

The Euro

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

The overlay of euro pairs above looks rather messy, huh? But if we simply strip EUR/AUD and EUR/NZD, then we can see that the euro actually had uniform, two-way action this week.

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

The euro started the trading week by gapping lower. The euro then tried to close the gaps, but encountered fresh selling pressure and slid lower practically non-stop until Wednesday.

And practically all market analysts blamed the euro’s broad-based slide on the German elections over the weekend because the CDU/CSU under German Chancellor Angela Merkel’s leadership was only able to win 33% of the votes (41.5% previous), which translated to 246 seats.

That’s fewer compared to the 311 seats from the last election and is short of the 355 seats needed for a majority government to boot.

Not only that, Merkel’s options for forming a coalition government have been severely limited because SPD intends to take the role of the opposition with its 153 seats.

Moreover, the far-right AfD, which had zero seats in the last election, was able to capture 94 seats in parliament and is now third strongest player in the Bundestag. And since the AfD is not particularly fond of Merkel’s pro-immigrant and pro-EU policies, investors quite naturally became concerned with the future of the biggest economy in the Euro Zone, which, in turn, weighed on the euro.

Aside from that, some market analysts also cited the Greenback’s strength as another reason for the euro’s weakness, since that supposedly convinced some forex traders to take profits on their long euro positions in order to buy up the Greenback.

The euro did find support later and was even trading higher by Thursday. The European Commission’s latest consumer and business survey likely helped the euro to recover, since the reading for September came in at 113.0, which is the highest reading since 2007.

However, the euro’s recovery was more likely due to month-end and quarter-end flows as hedge funds, mutual funds, pension funds, and other large players rebalance their portfolios and/or prepare to make cash distributions.

In fact, some market analysts cited month-end and quarter-end positioning as one of the reason for the Greenback’s weakness on Thursday and Friday. And since Greenback strength supposedly contributed to the euro’s earlier weakness, the converse also apparently holds true – Greenback weakness helped to prop up the euro.

Also, month-end and quarter-end positioning helps to explain why the euro just shrugged off the flash estimate for the Euro Zone’s September HICP, even though the headline reading came in at 1.5% year-on-year (1.6% expected, 1.5% previous) while the core reading printed a 1.1% increase (1.2% expected, 1.2% previous).

The Pound Sterling

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

Like last week, the pound had a mixed performance this week. Unlike last week, however, the pound was a net winner this week.

Looking at the overlay of pound pairs above, we can see that the pound’s price action was rather messy. And that, plus the pound’s mixed performance for the week, imply that the pound was vulnerable to opposing currency price action this week.

As such, it looks like the pound is still in consolidation mode after skyrocketing two weeks ago in the aftermath of the BOE statement and the unexpected revelation that BOE MPC Member Vlieghe has switched to the hawkish camp.

Still, there were a few interesting events this week, although they didn’t really have a major effect on the pound’s directional movement.

Up first is the latest retail sales report from the Confederation of British Industry (CBI).

That report is mid-tier at best and rarely (if ever) has an effect on the pound’s price action. However, it somehow caused the pound to jump higher, likely because it noted that “Retail sales volumes grew at the fastest pace for two years in the year to September following a decline in the previous month’s figures.”

Moreover, a net 42% of companies surveyed higher sales, which is much bigger than the consensus that only 6% of retail companies would report higher sales and is “the highest [reading] since September 2015” to boot.

Next, BOE Guv’nah Mark Carney gave a short speech on Thursday and the pound got kicked lower when he said that:

“Even though monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU, it can influence how this hit to incomes is distributed between job losses and price rises.”

However, Carney also said that:

“The Bank will do everything it can to support adjustment consistent with its statutory obligations. We will continue to assess and express our independent assessment of the risks associated with Brexit. We will also use all our powers, consistent with our remits, to mitigate those risks and to smooth the adjustment to new opportunities”

In short, until new trade relations are established, Brexit will have negative effects on the U.K. economy and the BOE can’t prevent these – the BOE can only mitigate these risks and negative effects at best.

Fortunately, Brexit Secretary David Davis gave a speech shortly after Carney’s speech.

And in his speech to conclude the fourth round of Brexit negotiations, Davis said that talks were conducted in a “constructive and determined manner,” which is why he believes that both sides are “making decisive steps forward” and “have made considerable progress.”

This apparently eased Brexit-related jitters a bit since the pound jumped higher and even had some follow-through buying.

However, follow-through demand for the pound later dwindled, ahead of the U.K.’s GDP report. The pound got a sharp kick lower ahead of the GDP report because BOE Guv’nah Carney was interviewed by the BBC.

You see, Carney hinted at a rate hike in the near future when he said that:

“If the economy continues on the track that it’s been on, and all indications are that it is, in the relatively near term we can expect that interest rates will increase.”

However, Carney also dampened expectations for future rate hikes when he said that:

“We’re talking about just easing the foot off the accelerator to keep with the speed limit of the economy and so interest rate increases when they come – when and if they come – will be to a limited extent and gradual.”

This is the same cautious message he gave in last week’s speech, so it’s not really new and is probably why there was limited selling pressure. Well, that is until the final estimate for the U.K.’s Q2 GDP was released and fresh pound bears charged.

You see, the quarter-on-quarter reading was unchanged at +0.3%. However, the year-on-year reading was unfortunately downgraded from +1.7% to +1.5%, which is the weakest annual reading since Q1 2013.

There was no follow-through selling, though, and the pound’s price action became choppy and mixed.

By the way, Markit will be releasing a fresh batch of PMI reports next week, so hopefully they’ll be enough to give the pound more uniform directional price action.

The Swiss Franc

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

The Swissy had a reversal of fortune and ended up as this week’s champ. Were you surprised to learn that the Swissy was the best-performing currency of the week?

The Swissy got a windfall on Monday because the Swissy was apparently the save-haven of choice when North Korean jitters made a comeback.

However, the Swissy benefited from the misfortune of other currencies as well. The euro, for instance, suffered heavily on Monday and Tuesday because of the political limbo in Germany. The Kiwi was also suffering because of political uncertainty in the wake of the New Zealand election.

Meanwhile, the Aussie got weighed down by the commodities rout starting on Tuesday. The yen, in turn, got dragged lower because of rising bonds and it’s also likely that Abe call for a snap election benefited the Swissy more than the yen.

And if you haven’t read up on write-up for the Loonie yet, you’ll learn later that BOC’s Poloz didn’t really do any favors for the Loonie, which became a boon for the Swissy.

As for the Greenback, it was able to claw its way higher against the Swissy. Unfortunately for the Greenback (and fortunately for the Swissy), the Greenback encountered selling pressure on Thursday, apparently because of profit-taking and month-end/quarter-end flows. And so the Greenback lost out to the Swissy again.

To sum it all up, the Swissy benefited from the risk-off vibes at the start of the week. However, the Swissy also got lucky and some schadenfreude was going on because the Swissy benefited from the misfortune of the other currencies.

And for those who are interested, yes, the euro and the Swissy were still dancing somewhat in tandem. However, the Swissy the euro initially parted ways on Monday before making up and dancing in tandem for the rest of the week.

Just look at the same 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
CAD/CHF (black) vs. EUR/CAD (inverted, red): 1-Hour Forex Chart
CAD/CHF (black) vs. EUR/CAD (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

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 got another good bashing and ended up as this week’s third worst-performing currency because yen pairs were taking directional cues from bond yields and bond yields climbed even higher this week.

And according to market analysts, bond yields rose because Yellen reaffirmed the Fed’s hawkish bias during her speech on Tuesday, although Yellen did call for a more “gradual pace of adjustments”.

In addition, market analysts also attributed the rise in bond yields to Trump’s tax plan since it spurred investors to unwind their Treasury holdings, given that Trump tax plan proposed tax cuts for individuals and business but Trump didn’t really say how he plans to offset the expected loss in government revenue. As such, concerns were raised that the U.S. government may resort to issuing even more Treasuries.

As a side note, the BOJ released the Summary of Opinions for the latest BOJ meeting on Thursday. However, that was a dud for the most part, even though there was this interesting bit:

“As a consumption tax hike is scheduled in October 2019, it is necessary to further stimulate the aggregate demand by additional monetary easing so that the price stability target will be achieved in a stable manner.”

The dovish BOJ member who said that was not identified. But if we are to make an educated guess, then that would probably be newly appointed BOJ Member Goshi Kataoka since he was the only one who dissented from the consensus outlook that inflation will pick up, as revealed in the latest BOJ statement.

Another side note is that Japanese PM Shinzo Abe announced back on Monday that he will be calling for a snap election. And to that end, he dissolved the Japanese lower house on Thursday, with October 22 is the tentative date for the election.

However, those events didn’t really seem to have any noticeable, immediate impact on the yen’s price action.

The Canadian Dollar

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

The Loonie had a more mixed performance this week but was still a loser overall. And as I’ve been pointing out in the past weeks, the Loonie didn’t really track oil prices anymore since oil benchmarks were actually well in the green for the week.

  • U.S. crude oil up (CLG6) by 1.91% to $51.63 per barrel for the week
  • Brent crude oil up (LCOH6) by 2.03% to $56.73 per barrel for the week

Anyhow, the Loonie had a mixed start but began trading higher against everything the Greenback on Tuesday. There were no apparent catalysts and oil’s rally stalled at the time because of the Greenback’s strength triggered broad-based commodities rout.

However, it’s highly likely that market players were opening preemptive positions ahead of BOC Boss-Man Poloz’s speech on Wednesday in the hopes that the Boss-Man will present a more upbeat tune compared to BOC Deputy Governor Timothy Lane’s speech from last week.

Unfortunately, that hope was crushed because the Boss-Man took a swing at the Loonie’s recent strength when Poloz said during his speech that (emphasis mine):

The temporary factors that have been holding inflation down should dissipate in the months ahead, although recent exchange rate developments could affect this timing.

Among the financial market developments that we watch closely are movements in longer-term interest rates and the exchange rate. Changes in interest rates naturally lead to movements in the Canadian dollar. However, currencies can move for many other reasons, including external factors, and these movements can affect our inflation outlook, depending on their cause, size and persistence.”

That’s basically what BOC Deputy Governor Lane said last week. And it doesn’t stop there because Poloz also said that (emphasis mine):

Since inflation has been so consistently in the lower half of the target band, our risk-management approach to monetary policy led us to pay greater attention to forces pushing inflation down.

The appropriate path for interest rates in this situation is very difficult to know, because there are a number of important unknowns around the inflation outlook. These unknowns are unusual, as they are mostly the product of the unusual nature of the situation we find ourselves in—the legacy of the global financial crisis, the protracted period of slow economic growth and extremely low interest rates, and so on.

Note that Poloz is trying to sound more neutral here, which is rather dovish, considering that the BOC just recently delivered back-to-back rate hikes.

And to drive home the point that the BOC wants to shift to a more neutral tone, the Boss-Man concluded his speech by saying that (emphasis mine):

“The economic progress we have seen tells us that the moves we took to ease policy in 2015 were the right thing to do. At a minimum, that additional stimulus is no longer needed. But there is no predetermined path for interest rates from here. Monetary policy will be particularly data dependent in these circumstances and, as always, we could still be surprised in either direction. We will continue to feel our way cautiously as we get closer to home, fostering economic growth and keeping our inflation target front and centre.”

What a bummer. It’s therefore quite understandable why traders reacted by dumping the Loonie across the board.

Moving on, the Loonie stabilized after the selloff and ahead of Canada’s GDP monthly report. And unfortunately, the GDP report was another source of anguish for Loonie bulls because Canada’s GDP was flat month-on-month in July (+0.1% expected, +0.3% previous).

That’s not a very promising start for Canada’s Q3 GDP. In addition, the flat reading puts an end to eight consecutive months of month-on-month GDP growth. And so the Loonie got sold off again before bouncing back later, apparently because of profit-taking.

Anyhow, the Loonie’s broad-based rise on Tuesday and the inherrent vulnerability of the Kiwi, the euro, and the Aussie were able to partially offset the Loonie’s slide in the wake of Poloz’s speech and Canada’s disappointing GDP report, which is why the Loonie was mixed but still a net loser this week.

The Australian Dollar

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

The Aussie had a mixed start but began trending broadly lower starting on Tuesday and ended up as the second worst-performing currency of the week.

And the Aussie started tanking on Tuesday, apparently because of the broad-based commodities rout. And the commodities rout, in turn, was linked by market analysts to the Greenback’s strength.

After all, a stronger U.S. dollar means that globally-traded commodities (that are priced in USD) become relatively more expensive and less attractive to buy (but more attractive to sell.

In that regard, one can say that the Aussie’s weakness this week was due to the Greenback’s strength.

Anyhow, below are some sample commodities with an overlay of AUD pairs. One thing that you may notice is that most Aussie pairs appeared to be tracking gold more closely this week. Another thing you may notice is that the Aussie is still not tracking iron ore prices as closely, which marks the third week in a row that the Aussie and iron ore didn’t see eye-to-eye.

Overlay of AUD Pairs & Iron Ore (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Iron Ore (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Copper (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Copper (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Gold (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Gold (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Silver (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Silver (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & WTI Crude Oil (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & WTI Crude Oil (Black Line): 1-Hour Forex Chart

The New Zealand Dollar

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

The Kiwi got a mighty good whupping and was this week’s worst-performing currency. And while price action on the Kiwi looks kind messy, it does get better if we simply remove AUD/NZD and EUR/NZD.

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

As you can see, the Kiwi suffered the bulk of its losses on Monday and Tuesday. And Kiwi bears can sing their praises to (and Kiwi bulls can utter their curses on) the 2017 New Zealand general election over the weekend since the National Party was able to win the most votes but provisional results show that National only secured 58 seats in parliament, which are not enough to form a majority government (61 seats needed).

This brought about a hung parliament, which naturally caused political uncertainty to ramp up and made investors jittery.

And it doesn’t get any better because the Labour Party was able to capture 45 seats. And if Labour allies with the Green Party (who won 7 seats) then that raises their total seats to 52, so a Labour-Greens coalition could challenge National’s leadership.

To make the political limbo even worse, the New Zealand First Party was able to secure 9 seats in Parliament, which means that Winston Peters of the New Zealand First Party is now hailed as the so-called “kingmaker” because his Party’s 9 seats would be enough to form a coalition government with either National or Labour.

Moving on, the Kiwi also got hit with another wave of bearish pressure after New Zealand released its latest trade report, revealing that New Zealand’s goods trade balance had a nasty deficit of $1.235B for the month of August, which is a bigger gap than the expected shortfall of $825M and is a disappointing development after the previous month’s $98M surplus.

The Kiwi later steadied and even began climbing higher ahead of Wednesday’s RBNZ Statement, likely because of the risk-on vibes at the time, although profit-taking by Kiwi shorts is also a possibility.

And when the RBNZ statement finally rolled around, the Kiwi got slapped broadly lower but buyers were waiting, likely because the RBNZ’s prepared statement during the September RBNZ statement was not really more dovish compared to the RBNZ’s prepared statement for the August RBNZ statement.

To be more specific, the RBNZ reiterated the following dovish statements:

Headline inflation is likely to decline in coming quarters, reflecting volatility in tradables inflation.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

However, there were also not so subtle changes that astute forex traders may have picked up. And first among them was the RBNZ’s statement on the Kiwi (emphasis mine):

The trade-weighted exchange rate has eased slightly since the August Statement. A lower New Zealand dollar would help to increase tradables inflation and deliver more balanced growth.

That’s a softer tone compared to the RBNZ’s previous statement that (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 weakness is also likely why the RBNZ conspicuously removed its previous downbeat statement that “The outlook for tradables inflation remains weak.

In fact, the only clearly more dovish message from the RBNZ was its statement that “Growth is projected to maintain its current pace going forward” because the RBNZ had a more upbeat outlook previously when it said that “Growth is expected to improve going forward.

Anyhow, the not-as-dovish-as-expected RBNZ statement apparently attracted enough Kiwi bulls to give the Kiwi bears a tough time since the Kiwi traded roughly sideways for the rest of the week, as Kiwi bulls and Kiwi bears battled it out.