The Forex Week In Review

The Week That Was

Forex markets were decidedly quieter this week as the major currencies remained fairly range-bound, though weaker against the US Dollar which continued to grind higher this week. On the data front, we had rather a mixed flow of US data with Personal Consumption & Consumer Confidence both undershooting expectations,Durable Goods beating expectations and GDP printing in-line. Market expectations of a December lift-off remain on track with CME group now pricing a 78% probability of lift-off before the year end.

Risk sentiment was this week rocked once more as news of a Russian fighter jet being shot down by Turkey prompted an early flight to safety with equity markets sent reeling. However, in the absence of a significant Russian response, sentiment recovered to see equity markets trading back to weekly highs approaching the Thanksgiving weekend. Further data weakness from China saw commodity prices tumbling from recent recovery highs with Oil sliding too as the world’s second largest economy saw industrial profits falling another 4.9% in October, adding to global growth concerns.

Overview

  • USD Was fairly mute over a thinned holiday week. Expectations for December lift-off are now fully loaded and USD long positioning saturated presenting the risk of a squeeze. Data flow was mixed though December lift-off view intact with USD grinding higher over the week. Markets now look ahead to the upcoming NFP print.
  • EUR The single currency was sent sharply lower this week on news that the ECB are considering further easing with either staggered charges placed on Banks holding on to cash or increased debt purchasing. The policy divergence which drove EUR lower at the beginning of the year is now firmly back in place heading into both the ECB and Fed December monetary policy meetings. With EURUSD down significantly heading into next week’s meeting and the heavy Dovish rhetoric abounding on news wires markets will be looking for a significant move from Draghi to to extend price lower.
  • GBP Sterling was another victim of “verbal intervention” this week as comments by BOE members sent the Pound lower. BOE Governor Carney, in testimony to the treasury committee, said that he foresees low rates in the UK for a long time to come with BOE’s Haldane opining that the risks to UK inflation and growth are skewed to the downside. UK 3Q GDP came in as expected at 0.5% confirming the slowdown from the previous 0.7% print in April-June with net trade hitting an 18 year low.
  • JPY The Japanese Yen was firmer this week benefiting still from positive investor sentiment following recent Hawkishness from the BOJ, who despite still struggling with downward inflationary pressure, are sounding optimistic over the economic outlook and as such have clearly ruled out further easing this year. Japanese inflation data showed headline CPI came in as expected at 0.3% though core slightly undershot expectations missing by 0.1%.
  • AUD The Aussie tumbled from weekly highs of .7280 as iron ore prices dropped to their lowest levels in 6 years. Recent improvements in Australian labour market conditions, accompanied by an optimistic RBA have seen the Australian Dollar rebounding over recent weeks but concerns around China still weigh on the Aussie’s trading outlook. Further concerns arise from the latest domestic capital expenditure data which showed business investment down more than 9% in 3Q suggesting a weaker 3Q GDP print next week. However, the Aussie’s inability to break significantly lower on this data weakness suggests that bearish positioning in the currency is over-crowded leaving risk of an upside squeeze a possibility.
  • CAD The Canadian Dollar enjoyed a much needed rebound this week spurred on by a similar bullish correction in Oil prices. The move in Oil was partly driven by escalating tension in the Middle East but also upon reports that Saudi Arabia, the world’s largest Oil producer, have pledged to do whatever necessary to stabilise Oil prices. The upcoming BOC rate decision is the main focus, especially given the continued slide in Oil prices, though with the Fed seemingly on course to raise rates in December it is not expected that the BOC will further reduce rates this year.
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