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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.

Another week of Greenback domination was apparently the main theme this week since the Greenback was the top-performing currency of the week and 5 of the top 10 movers happen to be Greenback pairs.

So, what drove forex price action on USD this week? And what about the other currencies? 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 overpowered ALL its forex rivals, marking the second week of Greenback domination.

The Greenback had a steady start but began to climb higher on Tuesday, even though there were no apparent catalysts.

Some market analysts pointed to a Bloomberg report wherein Trump supposedly asked the Republican senators on who they want to be the next Fed Head, with Powell, Taylor, and Yellen supposedly as the main choices.

And while the report noted that most senators didn’t participate, the report also cited South Carolina Senator Tim Scott as saying that he thinks that “Taylor won.” And remember, Taylor is seen is one of the more hawkish Fed Head candidates.

Going back to the Greenback’s price action, the Greenback did react positively soon after the Bloomberg report made the rounds. However, the Greenback already moved by a lot before that, which leads me to think that the likely reason for the Greenback’s bullish push was speculation that the House of Representatives would also approve the 2018 budget proposal.

And if you can still recall last week’s USD recap, the Greenback also climbed higher ahead of the Senate vote to pass the 2018 budget blueprint, even though there were no major direct catalysts for the Greenback at the time.

Getting back on topic, the Greenback had a more mixed performance on Wednesday before resuming its broad-based rise on Thursday, only to stumble a bit when news hit the wires that the House of Representatives voted 216-212 in favor of passing the 2018 budget proposal, likely because of profit-taking by Greenback bulls who opened preemptive positions on Tuesday.

However, the fact that the 2018 budget blueprint was approved by the House does mean that Trump’s tax reform plans have a higher chance of pushing through. And so Greenback bulls quickly provided the Greenback with some support.

And in hindsight, it’s also likely that Greenback bulls were opening preemptive positions ahead of the advanced Q3 U.S. GDP report. After all, as Forex Gump pointed out in his Event Preview, leading and related economic reports were hinting at stronger readings for both GDP growth and the GDP price index. Moreover, there were strong historical tendencies for both GDP growth and the GDP price index to print better-than-expected readings during Q3.

And, well, the advanced Q3 U.S. GDP report revealed that Q3 GDP grew by 3.0% quarter-on-quarter annualized, which is better than the expected 2.5% increase.

The GDP price index, meanwhile, increased by  2.2%, which is a much faster rate of increase compared to the consensus reading of 1.7% and is the strongest reading in five quarters to boot.

The Greenback did jump higher as a knee-jerk reaction. However, instead of accelerating, the Greenback rally quickly fizzled out and later turned into a Greenback rout.

There were some disappointing details in the GDP report, such as inventories contributing a large chunk to GDP growth, but odds for a December rate hike actually improved according to the CME Group’s FedWatch Tool, which is why I think the Greenback rally ahead of the GDP report was also partially driven by preemptive positioning on expectations that the GDP report will print better-than-expected numbers.

Anyhow, Friday’s tumble was not enough to steal total victory from the Greenback, so the Greenback reigned supreme for another week.

By the way, there are a lot of top-tier reports and events for the Greenback next week, including another FOMC statement and NFP report, so make sure to keep an eye on the Greenback next week.

The Euro

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

I told y’all in last week’s EUR recap to keep an eye on the euro since it’s highly likely that the ECB statement will give the euro a volatility boost.

And sure enough, the October ECB statement didn’t disappoint, well, it didn’t disappoint the euro bears at least.

You see, the ECB decided to maintain its monetary policy while announcing that it plans to extend its QE program by nine months after the current QE extension expires this December 2017, but at a tapered pace of €30 billion per month.

The decision to maintain the current monetary policy while announcing a QE extension at a reduced pace is within expectations, so market players looked to the ECB’s forward guidance on its QE program.

And sadly for euro bulls (but good news for euro bears), the ECB retained its easing bias on its QE program when it reiterated that (emphasis mine):

“If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the APP in terms of size and/or duration.

ECB Overlord Draghi explained during his presser that the ECB plans to reduce its asset purchases “reflect an increasing degree of confidence in our capacity to reach a self-sustained inflation objective.

However, Draghi also said that the ECB opted to keep its easing bias because “of the fact that we are not there yet. As a matter of fact, headline inflation if anything will decline in the coming months.”

Aside from the ECB’s disappointing forward guidance, Catalonia’s bid for independence was also brought into the picture when a journalist asked the following question:

“[I]s political uncertainty in Catalonia now a risk for financial stability in Spain and in the euro area as a whole?”

And Draghi answered as follows:

You know, it’s very, very difficult to comment about developments that change every day. So it’s just very difficult. Of course we are following what’s happening. The importance of what’s happening is significant. To conclude now that there will be financial stability risks will be premature; we have to see what’s going to happen. But rest assured we look at that with attention, great attention.

That’s a rather vague answer from Draghi, but Draghi’s admission that the ECB is paying “great attention” to developments related to Catalonia does imply that Catalonia could tilt risks more toward the downside.

And the situation in Catalonia only got worse on Friday since the Catalan Parliament voted in favor of a resolution declaring Catalonia’s independence from Spain and Spain retaliated by declaring that Catalonia’s independence is illegal before promptly dissolving the Catalan government and calling for fresh elections by December 21.

However, the euro barely reacted to all that drama, although some sellers did come in later and some market analysts attributed that to the events in Catalonia. A rather late reaction, I suppose.

Anyhow, it would be interesting to see if these recent development with regard to Catalonia and the ECB’s disappointing forward guidance will push the euro even lower, or if the euro will just shrug off all that drama since a fresh batch of Euro Zone inflation and GDP reports are scheduled for release next week.

The Pound Sterling

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

The pound was a net winner yet again, which marks the third consecutive week of broad-based pound strength. Like in the past couple of weeks, however, the pound’s rise this week was not without its obstacles.

The pound had a steady start before sliding on Tuesday, which is rather weird because there were no apparent catalysts.

Some market analysts pointed to growing doubts that the BOE may be able to deliver a November rate hike after BOE Deputy Governor Jon Cunliffe was quoted by the Western Mail as saying that in his personal view, “the economy has clearly slowed this year.

Cunliffe did say supposedly that “Over the forecast period of three years, rates will need to rise.” However, Cunliffe was quick to add that “The exact timing of when that starts? Well, that for me is a more open question.”

Anyhow, if the pound’s slide on Tuesday was due to Cunliffe’s interview, then that was a really delayed reaction, so profit-taking ahead of the U.K. GDP report after two weeks of broad-based pound strength is a more likely explanation for the pound’s Tuesday slide.

Speaking of the U.K.’s preliminary Q3 GDP report, that caused the pound to skyrocket and is the sole reason why the pound was a net winner this week.

You see, the U.K. economy grew by 0.4% quarter-on-quarter in Q3, beating forecasts for a 0.3% expansion, as well as the BOE’s forecast also of +0.3%, as laid out in the August Inflation Report.

The details of the GDP report were also pretty good since 9 out of the 10 major industry groups printed growth in Q3, with the construction industry being the only loser (-0.7% vs. -0.5% previous).

And of those 9 industries that showed growth, 6 reported even stronger readings, with the 1.0% quarter-on-quarter surge in manufacturing output being the most noticeable (-0.3% previous).

Moving on, the pound kept climbing for  a while until it reached a ceiling during Wednesday’s U.S. session.

After that the pound’s price action became mixed but selling pressure was notable on most pairs.

There were no direct catalysts for the pound’s later weakness, but market analysts were blaming that on profit-taking by pound bulls ahead of next week’s BOE statement, as well as speculation that if the BOE does hike next week, their forward guidance will likely hint that it’s a one and done deal. In other words, a dovish hike.

And on that note, make sure to keep an eye on the pound next week since it’s very likely that the BOE statement will give the pound a volatility injection.

The Swiss Franc

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

The Swissy was mixed but a net loser yet again. And as usual, the Swissy and the euro were dancing in tandem.

This week, however, the Swissy was more vulnerable to opposing currency price action on Wednesday while the euro felt the pain in the wake of the ECB statement more than the Swissy, although the Swissy also found some sellers.

Also, there was a weird decoupling on Friday that allowed the Swissy to actually outperform the euro on some pairs, likely because the developments in Catalonia caused some forex traders to run to the safe-haven Swissy for cover while crying and screaming.

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

As you can see in the bullet points below, most of the major equity indices were able to rake in gains this week, which means that appetite for risk was the more dominant sentiment.

  • Nikkei 225 (N225) closed 2.57% higher to 22,008.45 for the week
  • Shanghai Composite (SSEC) closed 1.13% higher to 3,416.81 for the week
  • Hang Seng (HSI) closed 0.17% lower to 28,438.85 for the week
  • The Euro Stoxx 50 (STOXX50E) closed 1.36% higher to 3,654.20 for the week
  • The DAX (GDAXI) closed 1.74% higher to 13,217.54 for the week
  • The DOW (DJI) closed 0.45% higher to 23,434.19 for the week
  • S&P 500 (SPX) closed 0.23% higher to 2,581.07 for the week
  • Nasdaq Composite (IXIC) closed 1.09% higher to 6,701.26 for the week

And as you also probably saw in the overlay of inverted JPY pairs above, the yields of benchmark 10-year government bonds climbed higher for the week.  

Moreover, Shinzo Abe won the elections over the weekend, which means that the BOJ’s super loose monetary policy under “Abenomics” will likely continue for longer.

However, Shinzo Abe’s victory only made the yen gap lower at the start of the trading week and didn’t really cause the yen to fall further. In fact, the yen even ended up as the second-strongest currency after the Greenback, despite the prevalence of risk appetite.

What sorcery is this, you ask?

Well, the climb in the yields of benchmark 10-year U.S. government bonds doesn’t actually tell the whole story on global bond yields since most European bond yields actually dropped hard across the board for the week, thanks to the ECB statement and renewed concerns over Catalonia. In fact, jitters over Catalonia ultimately ended up pulling U.S. bond yields lower on Friday.

And as you can see below, yen pairs (except USD/JPY) appear to have taken more directional hints from European bond yields, as represented by the yields of benchmark German 10-year government bonds.

Overlay of Inverted JPY Pairs & US10Y Bond Yield (Black Line): 1-Hour Forex Chart
Overlay of Inverted JPY Pairs & German10Y Bond Yield (Black Line): 1-Hour Forex Chart

And when you stop and think about it, it’s also quite likely that uncertainty over Catalonia may have spurred safe-haven demand for the yen itself.

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

As has been the case in the past few weeks, oil had another good run, but the Loonie got swamped by sellers. And Loonie bears can thank the BOC’s latest monetary policy announcement for that.

  • U.S. crude oil up (CLG6) by 5.25% to $54.17 per barrel for the week
  • Brent crude oil up (LCOH6) by 4.97% to $60.62 per barrel for the week

As for details, the BOC noted in its official press statement that:

“[The BOC’s] outlook remains subject to substantial uncertainty about geopolitical developments and fiscal and trade policies, notably the renegotiation of the North American Free Trade Agreement.”

Moreover, the BOC warned that:

“Growth is expected to moderate to a more sustainable pace in the second half of 2017 and remain close to potential over the next two years.”

“[P]rojected export growth is slightly slower than before, in part because of a stronger Canadian dollar than assumed in July.”

“Housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates. Because of high debt levels, household spending is likely more sensitive to interest rates than in the past.”

The BOC did hint that it still has a hiking bias, but it was quick to add that caution should be observed when it said the following (emphasis mine):

While less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate.”

Despite this hint at a hawkish bias, however, BOC Boss-Man Poloz seemed to imply that the BOC’s monetary policy stance is more neutral when the Boss-Man said the following during the BOC Presser (emphasis mine):

There’s nothing automatic, no predetermined path for interest rates, only a clear assessment that yes, over time, if the economy continues to behave as it has less monetary stimulus will be needed because the economy will be getting very close to home.

Oh, before we move on to the next currency, it’s worth noting that the Loonie appears to be taking directional cues from oil again.

This can be seen in the lack of follow-through selling on the Loonie since oil was stable at the time. And when oil started climbing late Thursday, many Loonie pairs also followed suit.

And when oil surged on Friday because of reports that Russia and Saudi Arabia are supposedly open to further oil production cuts, all Loonie pairs also caught a bid.

In fact, there wasn’t anything else going on for the Loonie on Friday, so market analysts attributed the Loonie’s strength to the oil rally.

Makes you wonder if the Loonie will continue taking directional cues from oil next week after parting ways with oil for a while, huh? But then again, there are top-tier Canadian economic reports next week, including Canada’s jobs report, trade report, and monthly GDP report, so it’s also possible that the Loonie will opt to take directional cues from those.

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

Gold was down for the week because of the Greenback’s strength, so the Aussie also had a tough time and even ended up as the worst-performing currency of the week.

There were three major instances of clear divergence between gold and the Aussie dollar, though. And it looks like the Aussie was taking directional cues from risk sentiment as well.

The first instance of divergence happened during Monday’s U.S. session when gold prices rose. However, the Aussie softly dipped without any direct catalysts, likely because of the returning risk-off vibes at the time.

The second divergence occurred during Wednesday’s late London/early U.S. session when gold rose again but the Aussie failed to follow gold higher, likely because of the risk aversion at the time.

The third and final major instance of divergence happened during Thursday’s morning London session when gold fell but the Aussie fought back and tried clawed its way higher pretty much across the board, likely because of the risk-on vibes ahead of and in the wake of the ECB statement, as mentioned in Thursday’s London session recap. Although the Aussie did succumb to bearish pressure later.

These divergences affirm my observation and personal hypothesis in last week’s AUD recap that the Aussie may be taking directional cues both from gold and risk sentiment, which is resulting in some rather funky price action on the Aussie.

Oh, Australia also released its Q3 CPI report, which caused the Aussie to drop sharply because the reading came in at +0.6% quarter-on-quarter, missing expectations for a 0.8% rise.

Year-on-year, Q3 CPI rose by 1.8%, decelerating from Q2’s +1.9% instead of accelerating to +2.0% as expected. Worse, this marks the second straight month of ever poorer annual CPI readings, which reinforces the idea that the RBA isn’t in any hurry to hike rates anytime soon.

Another interesting event is the Australian High Court’s ruling that Deputy PM Barnaby Joyce and others are ineligible to sit in the Australian Parliament because of their dual citizenship.

The ruling caused the Aussie to slide a bit, but had no long-lasting effect since the Aussie appeared to be more interested in taking directional cues from the risk-on vibes and later rise in gold prices.

The New Zealand Dollar

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

The Kiwi had a more mixed performance (and was even a net winner) this week after last week’s intense selloff.

Interestingly enough, last week’s Kiwi bashing looked like it was ready to resume on Tuesday, thanks to New NZ Prime Minister Adern’s speech after announcing NZF’s Winston Peters as Deputy PM.

NZF’s Peters appointment as Deputy PM likely raised concerns that the Nationalist and Populist NZF may try to push for protectionist policies and curb immigration.

However, Adern’s speech is also noteworthy since she said that:

We have been looking at changing the objectives set out in the Reserve Bank Act.

The objectives of the Act to possibly include employment is certainly part of our plans.

This is not really a very surprising development since I already explained this in last week’s NZD recap when I discussed why the Kiwi’s bearish reaction to NZF’s choice to back labor was so severe.

Still, Adern’s speech does reinforce fears that the RBNZ may be forced to delay its path to hiking, which is why the Kiwi got dumped across the board and continued to get follow-through sellers for a while after the initial reaction.

Interestingly enough, however, the Kiwi appeared to be taking directional cues from risk sentiment by the time Wednesday rolled around.

And this became even more apparent when the risk-on vibes ahead of and after the ECB statement gave the Kiwi support against most pairs. And by Friday, all Kiwi pairs were already on their way up when risk-taking persisted.

However, it’s also possible that we’re just seeing some profit-taking by Kiwi bears after Tuesday’s selloff and last week’s Kiwi dump.