The Forex Week In Review

The Forex Week In Review

An important week comes to a close in markets with the huge moves in Sterling grabbing the spotlight. Having begun the week under selling pressure in response to reports that UK PM May has confirmed that the UK will officially trigger Article 50 by end of March 2017, Sterling then suffered huge losses overnight on Friday as a “flash crash” rocked the UK currency. Despite further positive post-Brexit data, investor uncertainty is weighing heavily on GBP with markets caught offside by PM May’s announcement. Friday’s moves are thought to have been driven by algo activity in thin liquidity conditions prompted by comments made by French PM Hollande who urged the EU to take a hard stance on the UK during Brexit.

Attention then shifted to the US employment reports on Friday which marked the first labour market readings since the September FOMC.  The headline NFP print came in below expectations at 156k vs 174k expected whilst the Unemployment rate increased to 5% from 4.9% previous. The data prompted a sharp pullback in the US Dollar with hawks disappointed by the weak reading.

Overview

USD A mixed week for the US Dollar which strengthened considerably over the week fuelled by positive prints in both ISM Manufacturing and Non-Manufacturing readings before reversing lower on weak September NFPs and increased Unemployment rate. US rate hike expectations suffered in the wake of the disappointing employment reports which suggest the Fed is not likely to move in November and indeed, has fuelled a downturn in expectations for December easing.

EUR Bloomberg News reported the European Central Bank will likely gradually reduce bond purchases as it ends quantitative easing. An informal consensus has built among policy makers in the past month that asset buying will have to be tapered once a decision is taken to end the program, according to euro-zone central-bank officials, who asked not to be identified because their deliberations are confidential. On the data front, Eurozone Service PMI data and retails sales figures releases came in above market expectations and added to the EUR bid tone that has been seen since the ECB taper story

GBP Sterling started the week under significant pressure on the back of the confirmation by UK PM May the UK will officially trigger Article 50 and this begin the EU exit process by end of March 2017 at the latest. The announcement took markets by surprise leading to wave of selling. Despite positive September PMI readings over the week bearishness continued and during the early hours of Friday morning a suspected fat finger/algo error fuelled a 6% drop in GBPUSD. Selling started in response to comments by UK PM Hollande which urged the EU to take a tough stance on Brexit, moves were then exacerbated in thin liquidity conditions overnight.

JPY In September, Japanese households had more favourable assessment of the economy. Despite data pointing to modest growth this quarter, households expected improvement in employment and overall livelihood, sending the sub-components to multi-year high. Japan’s gauge of the services sector was down by 1.4 point to 48.2 in September, posting another evidence of modest growth this quarter.

AUD Retail sales grew 0.40% from July to August after flat growth from June to July. That was the quickest increase in seven months, driven by increased patronage in cafes, restaurants and takeaway food services. Performance of services index remained below 50, the point separating expansion from contraction, but a pick- up in sales and new orders pushed the reading higher (September: 48.9 vs August: 45.0).

CAD The Canadian Dollar was under pressure this week despite strength in Oil markets as traders continue to expect further BOC easing. Unemployment data on Friday showed that the headline rate remained steady at 7% in September