The Forex Week In Review

The Week That Was…

Heading into the final month of the year, Forex markets were treated to a little clarity this week. The seemingly endless debate surrounding the timing of a potential Fed lift-off looks to have become more one-sided with the October FOMC minutes release this week revealing the Fed t have noted that “ while no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting”. This marks the first time that the Fed have explicitly referenced a specific lift-off date. The reaction to this news was decisive with risk-markets staging a relief rally in the face of such much needed certainty; the S&P500 taking further steps back towards the multi year zenith. The US Dollar weakened in the wake of this risk on response but still remains firmly at the post-NFP highs. Consensus is now fixed upon a December lift-off with CME group pricing a 72% probability with USD long positioning back to levels last seen pre-September FOMC.

Overview

  • USD Down off highs as rate softened amidst the risk-on response to the Hawkish FOMC minutes but regained ground into the weekend. With rate holding around post-October NFP highs, bullish outlook remains intact.
  • EUR The single currency sustained a slight rebound this week with the latest CPI data showing EuroZone inflation managed to climb back into positive territory in October. However, price eventually turned lower once more as  the policy divergence between the ECB and Fed which drove price action at the start of the year looks now to be firmly back in place as run-down the year. Draghi commented that the ECB remain on course to do whatever is necessary to “raise inflation as quickly as possible”.
  • GBP Sterling delivered a second consecutive positive week as the latest CPI figures showed that although headline inflation was down again in October (printing only the second consecutive negative reading since the index’s creation in 1997) core inflation, which the Bank Of England favours, actually surpassed expectations by 0.1%. Retail sales missed however printing 3% against expectations of 5.9% followed by Public Sector Net Borrowing which decreased but less than expected, leading GBP lower against the Dollar.
  • JPY The BOJ maintained their current monetary base growth target at 80 trln Yen this week and despite noting some developing weakness in inflation expectations, recommitted to its current easing program stating that the program was having the intended effects. The BOJ’ refrain from further action saw a sudden appreciation in the Yen as the Nikkei too reacted higher. Data this week showed that once again Japan had slipped into a technical recession with 3Q GDP printing -0.8%.
  • AUD The Australian Dollar printed a second consecutive positive week as the RBA meeting minutes revealed the Central Bank to be sounding more optimistic about domestic economic developments which fuelled further upside in the Antipodean currency, extending strength seen from last week’s surprise decline in domestic unemployment. Commodity prices remain weak with global growth concerns still present which should act to keep Aussie upside in check.
  • CAD The Canadian Dollar was able to regain some of its recent losses as Oil managed to sustain a brief correction this week travelling north from a low of $40 to just shy of $43 per barrel on the week. Canadian CPI in October came in as expected though with a slight beat in core at 2.1% vs expectations of 2%.
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