The Forex Week In Review

The Week That Was…

This week has been dominated by a continuation of the themes that were prevalent into the back end of 2014. The market remains firmly focused on the policy divergence story between global central bank policy makers, the bullish dollar trade remains front and centre with the USD registering nine year highs this week.

US Nonfarm payrolls comes in stronger than expected on the headline, coming in at 252K (240Kexp, 353pre), driven by a big upside in construction. Moreover, there were a net 50k in revisions to the prior two months. The participation rate fell 0.2% to 62.7%, and as a consequence, the unemployment rate dipped to 5.6% (5.7%e, 5.8%p). The unrounded number was 5.56%, so this was close to a 5.5% unemployment rate. Tempering these factors though, was the average hourly earnings for December, which fell 0.2%MoM ( 0.2%e,p). This drops the YoY figure down to 1.7%, which is the lowest since 2012. Given the focus on broad measures of labour market slack by the Fed, this latter outcome tempers the otherwise very positive report. Net/net, this NFP number is still very strong, but lack of wage growth gives the Fed time to mull over its decision on lift off with respect to interest rates.

  • USD  registering nine year highs, the bullish USD has been supported this week by the FOMC minutes which have demonstrated that the FOMC are set to hold their course and the market anticipates a rate move this year, today’s more mixed jobs data has prompted a round of profit taking as some pare back the rate expectations based on the lack of wage growth in today’s jobs data.
  • EUR Game remains the same, EURUSD continues its grind lower making a new low of 1.1754 this week. Market continues to worry about positioning which is at extreme levels and leaves the EURUSD vulnerable to short squeeze rally attempts, but as has been the case on each such attempt recently willing sellers emerge quickly.
  • GBP The UK data was mixed this week, the trade data was better than expected, however, the industrial production data was weaker than expected, construction output was also weak. This data is likely to take the steam out of the potential for the GBP rebound and is consistent with the markets longer term bearish view, with recent UK data suggesting a moderation in the pace of UK growth. 
  • JPY drifts lower as Nikkei corrects recent gains. Buying dips has been the markets preferred strategy although USDJPY remains caught between USD strength and EURJPY selling which has been a strong driver this week.
  • AUD short covering has been the story of the AUD into the back end of the week, AUD held well despite slightly weaker Australia retail sales and China inflation data. AUDUSD has broken above the down trend line from mid-November.
  • CAD after registering multi year highs upside momentum appears to be stalling, with crude oil finally having found some support, there is good chance of at least a profit taking correction in USDCAD in the coming days

Key Views

  • EURUSD Short Term (1-3 Days): Bearish  – Medium Term (1-3 Weeks) Bearish
  • GBPUSD: Short Term (1-3 Days): Bearish  – Medium Term (1-3 Weeks) Bearish
  • USDJPY: Short Term (1-3 Days): Bullish  – Medium Term (1-3 Weeks) Bullish
  • USDCAD: Short Term (1-3 Days): Bullish  – Medium Term (1-3 Weeks) Bullish
  • AUDUSD: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks) Bearish

Make sure you tune in on Sunday evening for our Weekly Forex Outlook & COT analysis.

Introducing our new Forex Trading Course: with indicators, trading plans & strategies!