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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.

Looking at the table above, we can see that 6 of the top 10 movers are pound pairs. And since the pound is losing out in each and every pair, it looks like pound bashing was the week’s main theme. So why was the pound so weak this week? And what about the other currencies? How did they fare this week and what drove their price action? Well, 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 was the top-performing currency of the week, which means that the Greenback has been on winning streak for four weeks running already.

And as you can see in the chart above, the Greenback started the week running, thanks to start-of-the-month positioning amid higher odds for a Fed rate hike and renewed hopes for Trump’s tax plans, market analysts say.

In addition, it’s also highly likely that market players were betting on a positive NFP report because the Greenback found more buyers after ISM’s latest manufacturing PMI report was released (60.8 vs. 57.9 expected, 58.8 previous).

However, the Greenback encountered selling pressure come Tuesday, apparently because of rumors that Fed Governor Jerome Powell is the Trump administration’s favored candidate to replace Yellen as Fed Chair. After all, Powell is one of the least hawkish among the list of known candidates to be the next Fed Chair. So if Powell does replace Yellen, then the market thinks that the Fed’s path to tightening would be even more gradual than it currently is, which is why the Greenback reacted negatively to these rumors.

Thankfully for Greenback bulls, selling pressure began to dissipate when the September ADP report was released since it printed a 135K increase in private non-farm payrolls, which is more than the 131K expected and likely enticed speculation that the NFP report will also be positive.

The Greenback’s rally was then sustained by the better-than-expected reading for ISM’s non-manufacturing PMI (59.8 vs. 55.5 expected, 55.3 previous), as well exports rising to a 2-and-½-year high, which resulted in a narrower-than-expected U.S. trade deficit (-$42.4B vs. -$42.7B expected, -$43.6B previous), and hawkish rhetoric from a bunch of Fed officials.

And when the much-awaited September NFP report was finally released on Friday, it was revealed that the U.S. economy suffered a net loss of 33K jobs, which is way off expectations for an 85K increase.

Instead of dropping, however, the Greenback spiked higher as a knee-jerk reaction, very likely because the market was already expecting a poor reading, given that Yellen already warned that “the hurricanes severely disrupted the labor market in the affected areas, and payroll employment may be substantially affected in September” during the September FOMC statement. Also, Yellen did say that “such [negative] effects should unwind relatively quickly.”

And since the Fed itself already gave a heads up on the poor jobs growth, market players were very likely more focused on wage growth since that has a more direct impact on inflation and, by extension, rate hike expectations.

And as it turns out, average hourly earning grew by 0.5% month-on-month, which is faster than the consensus for a 0.3% rise. In addition, the August’s measly 0.1% increase was revised higher to show a 0.2% increase.

There was no follow-through buying, though. In fact, the Greenback later got dumped hard. There were no direct catalysts, but some market analysts blamed the Greenback’s weakness on news about a possible North Korean missile test since that caused U.S. bond yields to contract sharply as demand for U.S. bonds surged. And the slide in U.S. bond yields, in turn, apparently dragged the Greenback down.

Of course, it’s also possible that the Greenback’s slide was just due to profit-taking by Greenback bulls in order to avoid weekend risk. And all the more so, given that there was growing concern at the time that Hurricane Nate may enter the U.S. Central Gulf Coast and inflict some damage there.

The Euro

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

Price action on the euro was rather chaotic with lots of diverging price action. And that, together with the euro’s mixed performance for the week, heavily imply that the euro was vulnerable to opposing currency price action.

As to why the euro was vulnerable to opposing currency price action, there was no apparent reason for that and most market analysts prefer not to talk about the euro’s price action this week.

The euro did have a poor start, apparently because of the Catalan independence referendum over the weekend, which was opposed by the Spanish government to the point of using violence.

However, concern for that event quickly faded and price action on the euro became a mixed mess by Tuesday. And with that, commentary on the euro’s price action quickly became hard to come by.

Anyhow, there were no major developments on German coalition negotiations, which likely contributed to the lull in the euro’s price action as traders waited for actionable news.

It’s also possible that forex traders were in wait-and-see mode for fresh directional cues from the ECB. And unfortunately, the ECB’s meeting minutes didn’t deliver since nothing new was revealed.

Sure, the ECB had these negative things to say about the euro:

[I]t should be stressed that the recent volatility of the euro exchange rate represented a source of uncertainty, which required monitoring with respect to its possible implications for the medium-term outlook for price stability. While it had to be recalled that the exchange rate was not a policy target for the ECB, it was very important for growth and inflation developments in the euro area.

However, that’s not new since there have already been a lot of rumors pertaining to that and some ECB officials, including ECB Overlord Draghi, have already commented that the euro’s strength is worth watching.

Also, there was no fresh forward guidance on monetary policy since the ECB minutes just repeated that the “Governing Council would decide in the autumn on the calibration of its policy instruments beyond the end of the year.”

ECB Overlord Draghi is scheduled to speak next week. And hopefully we’ll get a little more action and uniform directional movement from the euro.

The Pound Sterling

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

After a couple weeks of mixed price action, the pound made some moves – to the downside – and ended up as the worst-performing currency of the week.

The pound showed weakness right from the get-go, with the political uncertainty being cited because of the Conservative Party’s Conference this week, with Theresa May’s speech on Wednesday in focus.

However other factors were apparently in play, namely the latest batch of PMI reports, which were negative overall.

To begin with, the U.K.’s manufacturing PMI reading for September dropped from 56.7 to 55.9, which is a much harder drop compared to expectations that it would only ease to 56.2 because “the latest gain in new orders was slower than the prior survey month” and because employment growth “was slightly below August’s three-year record.”

The only upbeat take away from the manufacturing PMI report was that “Input costs and output charges both rose at faster rates in September.” Heck, September saw “the steepest increase in output charges for four months,” which is good news for inflation.

That last bit about inflation is the likely reason why the pound eventually began getting buyers on most pairs, stalling the pound’s slide in the process.

Unfortunately for pound bulls, the U.K.’s latest construction PMI reading was released on Tuesday and the headline reading was revealed to have dropped from 51.1 to 48.1, which is the first reading below the 50.0 neutral mark since August 2016.

Moreover, commentary from Markit didn’t really take any of the disappointment away. Markit noted, for instance, that the “latest decline in work on commercial development projects was the second-sharpest since February 2013.” And because of the “sustained drop in new work,” construction companies reported that there was a “relatively weak rate of job creation.

And so the pound found itself getting swamped by a fresh wave of sellers on most pairs until the U.K.’s latest services PMI report took away some of the disappointment and provided the pound with some support since the headline reading improved slightly to 53.6 instead of holding steady at 53.2 as expected.

There was enough follow-through buying to cause the pound to tilt to the upside after that. However, pound bulls apparently gave up later since the pound began to slide again ahead of Theresa May’s speech at the Conservative Party’s Conference.

However, when Theresa May finally did speak, the pound’s reaction was rather subdued.

In fact, it wasn’t until Thursday’s morning London session rolled around that bears began to really give the pound a good old-fashioned beat-down, supposedly because market players thought about May’s speech and weren’t impressed with it since it only served to erode her leadership rather than cement it, market analysts say.

Also worth pointing out is that Theresa May didn’t really give any new details on her Brexit plans, opting only to repeat her mantra that the U.K.will have a “deep and special partnership” with the E.U., which likely disappointed some market players as well.

Anyhow, speculation that Theresa May’s leadership may be challenged in the near future supposedly continued to weigh on the pound. And so the pound continued to slide lower against everything (except the Kiwi) until the trading week came to an end.

The Swiss Franc

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

The Swissy was a major loser this week, even though the euro was mixed. Does that mean that the correlation between the Swissy and the euro’s price action finally ended? Well, no.

Just look at the sample pairs below and check your own charts if you still can’t believe it. Also note that the horizontal line represents a flat reading, so above that means that the pair was in positive territory for the week and below that means that the pair suffered losses.

Take note, in particular, of the chart for AUD/CHF and EUR/AUD and how the pairs closed in the opposite sides of the horizontal line, even though both had roughly similar price action. The implication, of course, is that both the euro and the Swissy were vulnerable to opposing currency price action but it was the euro’s turn to get lucky this time.

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
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 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 was the second strongest currency of the week. But interestingly enough, bond yields actually closed higher for the week.

And looking at the overlay of inverted yen pairs and the benchmark 10-year U.S. bond yields above, we can see that yen pairs were roughly tracking bond yields from Monday to Wednesday but decoupled on Thursday when bond yields began to rise but the yen held onto its gains (except on USD/JPY) instead of giving them back.

There is no clear reason for this and most market analysts chose to just ignore the yen’s price action. However, as noted in Thursday’s London session, the yen was likely enjoying the safe-haven flows because of the supposed political uncertainty in the U.K., as well as the risk-off vibes at the time.

And all the more so, given that the Swissy was out of commission as a safe-haven at the time, apparently because SNB Boss-Man Thomas Jordan was cited in a Bloomberg report as saying that even though there was “a certain decline in the franc’s overvaluation, the franc remains highly valued” and that “The situation on foreign-exchange markets remains fragile,” which is why the “The SNB isn’t thinking about changing its monetary policy” and will continue with its negative rates and its policy of intervening (*cough* currency manipulation *cough*) in the forex market.

Also, I noted back then that BOJ Deputy Governor Hiroshi Nakaso was speaking at the time and he sounded rather upbeat about inflation when he said that “There is a good prospect of inflation building up.”

More importantly, Nakaso also implied a more hawkish tone on monetary policy when he said that:

“But we have learned some lessons [from past policy responses]. This time around, there seem to be more reasons to believe that the true dawn is near.”

This is a rather notable shift in tone since Nakaso was blatantly dovish just a month ago, even going so far as to imply that the BOJ will resort to cutting negative rates even deeper if it had to.

Anyhow, the yen’s reluctance to give back its gains on Thursday, despite surging bond yields, is the main reason why the yen ended up being a net winner this week.

The Canadian Dollar

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

The Loonie was the third strongest currency of the week. And as has been the case for the past few weeks, the Loonie just ignored oil prices, which slumped rather hard this week.  

  • U.S. crude oil down (CLG6) by 4.74% to $49.22 per barrel for the week
  • Brent crude oil down (LCOH6) by 3.51% to $55.52 per barrel for the week

And interestingly enough, the Loonie was already getting some buyers on Monday, although it wasn’t until Tuesday rolled around that it became clear that the Loonie was tilting to the upside (except against the Aussie).

As to what drove the Loonie higher, it’s not very clear. However, some market analysts attributed the Loonie’s climb to recovering expectations for a BOC rate hike when BOC Deputy Governor Sylvain Leduc refrained from trying to talk down the Loonie or talk about monetary policy during his speech on Tuesday.

In other words, no news was goods news for rate hike expectations, which allowed Canadian bond yields and the Loonie to rise.

Anyhow, the Loonie’s rally was stunted on Thursday when Canada’s August trade report revealed that Canada’s trade deficit widened from $3.0 billion to $3.4 billion instead of narrowing to $2.6 billion.

Worse, the wider deficit was due to the 1% drop in exports, which marks the third consecutive month of declines.

Also, total imports were mostly flat for the month, which suggesting subdued domestic demand, with the 1.8% drop in imports of consumer goods being the most noticeable.

The disappointing trade report continued to weigh on the Loonie until forex traders apparently began to hunker down for Canada’s jobs report on Friday.

And as it turns out, the Canadian economy only generated 10.0K jobs in September, which is below the consensus range of 12K to 15K.

Despite the disappointing headline reading, however, the details were actually rather positive. And as Forex Gump stressed in his Event Preview for Canada’s jobs report, “if the Loonie’s reaction to the previous jobs report is a precedent, then it’s likely that forex traders are also keeping a very close eye on  full-time employment growth.

Well, that insight turned out to be golden since full-time employment surged by 112K in September, which is the biggest monthly gain on record and more than enough to wipe out the loss of 88.1K full-time jobs back in August.

Moreover, wages grew by 1.66% month-on-month, which is the strongest increase since September 2014. Year-on-year, this translates to a 2.17% surge, which marks the third consecutive month of ever stronger annual readings and is the strongest annual increase since April 2016 to boot.

As such, the Loonie initially dropped because of the disappointing headline reading, only to quickly find buyers waiting because of the more positive details. After that, Loonie bulls and Loonie bears fought it out, but the bulls clearly had the advantage since the Loonie began to grind higher on most pairs.

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 had a good start, likely because of short-covering ahead of the RBA statement and after last week’s Aussie selloff.

And as it turns out, the RBA decided to keep the cash rate at 1.50% while implying that it’s in no hurry to start hiking rates anytime soon.

Also, the RBA repeated its warning that:

The Australian dollar has appreciated since mid year, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to continued subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

Given all that, the Aussie began to encounter selling pressure on most pairs. However, the Greenback was retreating at the time, which allowed commodities to start rallying. And the Aussie apparently began to take cues from the commodities rally since most Aussie pairs also began tilting to the upside.

Unfortunately, Australia released its August retail sales report and revealed a 0.6% drop instead of rising by 0.3% as expected.

This the fastest drop since March 2013. But the disappointment doesn’t stop there because July’s reading was also revised lower to reflect a 0.2% decline.

Anyhow, follow-through selling on the Aussie after the initial drop was only limited, likely because commodities were still broadly in rally mode. Also, Australia’s trade balance for August, which was released at the same time as the retail sales report, printed $0.99 billion surplus, which is better than the $0.88 billion consensus and is the biggest surplus since May to boot.

Unfortunately for Aussie bulls, the Greenback gained strength on Thursday, which caused commodities to start declining and gave Aussie bears the upper hand, causing the Aussie to start tanking.

Commodities steadied during Friday’s Asian session. Instead of steadying as well, however, the Aussie got kicked even lower, apparently as a reaction to RBA Harper’s comments that:

The thing that is causing an issue for us [the RBA] is slow growth in wages, which is feeding into slow growth in household income.”

“If you start to lose that momentum, that might be the basis of some sort of policy action.

Those comments, while dovish enough on the surface, also implied that the RBA is open to cutting further if needed.

Moreover, Harper gave his two cents on Australia’s latest retail sales report by saying that “It [retail sales report] is yet another indication that we are not out of the woods,” adding that “You wouldn’t want to be jumping the gun and tightening too quickly.

Moving on, the Aussie continued to slide lower on Harper’s comment before climbing back up again during the morning London session, likely because of profit-taking ahead of the NFP report as well as to avoid weekend risk.

After that, the Aussie took directional cues from commodities and the Greenback again, diving when the Greenback surged because of the NFP report and then doubling back when the Greenback dropped hard after reports related to North Korea supposedly caused the Greenback to tank.

Anyhow, the two-way action on the Aussie is the reason why the Aussie had a mixed performance this week, even though the Aussie pairs had roughly uniform price action.

The New Zealand Dollar

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

After last week’s lashing, the Kiwi got whipped some more and ended up as this week’s second weakest currency after the pound.

The Kiwi’s price action looks somewhat messy at first glance. But if we remove GBP/NZD’s pesky price action, then we get this:

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

As you can see, the Kiwi steadily weakened over the course of the week, so it’s very likely that last week’s main theme – the political limbo in New Zealand – is still weighing down on the Kiwi.

However, it’s also very likely that other drivers were, well, driving the Kiwi’s overall price action. After all, the Kiwi’s steady slide did accelerate starting on Thursday, so much so that the Kiwi traded sideways against the pound, even though the pound was also getting hammered by sellers at the time.

So, what else was driving the Kiwi’s price action, you ask? Well, it’s very likely that interest rate differentials were also in play, with higher odds for a rate hike attracting investors away from the Kiwi to the Greenback.

Evidence for this can be seen by looking at the CME Group’s Fedwatch Tool since odds for a December rate hike fluctuated between 77% and 78% from Monday to Wednesday and the Kiwi was steadily sliding then.

However, odds for a December rate hike surged to 82.7% on Thursday and then jumped even higher to 87.8% to Friday. And as noted earlier, the Kiwi’s weakness intensified starting on Thursday.

Anyhow, there were also economic reports and/or events for New Zealand, but they didn’t really seem to have a major impact on the Kiwi’s price action.

On Monday, for example, the New Zealand Institute of Economic Research (NZIER) released its quarterly business confidence survey on Monday and the reading dropped from 18 index points to 5, which is the weakest in six quarters. However, the Kiwi barely budged.

Meanwhile, the latest dairy auction resulted in the GDT price index falling by 2.4%, which caused the Kiwi to drop lower. However, there was no follow-through selling and the Kiwi even recovered later.

There was also New Zealand Finance Minister Steven Joyce’s speech on Thursday, which was negative overall but the Kiwi barely reacted.

As for details, Joyce reported that New Zealand’s 2017 budget surplus was bigger-than-expected. However, Joyce also warned that This better result should be seen as a one-off. Treasury advises that much of this expenditure reduction reflects timing differences and is likely to reverse out in the years ahead.

In addition, “Treasury has based its forecasts on current economic settings and some reasonably solid growth predictions for the years ahead. A number of commentators have noted a softening of growth indicators in recent days.

By the way, the final tally for the New Zealand election is finally out. And it looks like the preliminary estimates were somewhat accurate since the National Party captured 56 seats, which is the most among the parties but short of the 61 seats needed for a majority government. And if the Greens and Labour combine their seats, then they can present a real challenge to National with their 54 seats.

The preliminary estimate that Winston Peters of the New Zealand First Party would be hailed as the so-called “kingmaker” also still holds true since Peters can use his Party’s 9 seats to support either National or a Labour-Greens coalition in order to finally get the 61 seats needed to form a government.

Also note that negotiations will start next week, so it’s likely that political uncertainty/drama in New Zealand will continue to have an effect on the Kiwi’s price action.