The Forex Week in Review

The Week That Was…

The lower-than-expected TLTRO2 take-up has increased the probability of the ECB embarking on an outright QE program, which should prove negative for EUR in the medium term.

Risk correction weakens USD. Indeed there might be trouble ahead for risk-seeking investors. Strong US consumer demand data additionally propelled by a boost to real disposable income may heat up the internal debate at the Fed, potentially resulting in a softening of interest rate guidance. Liquidity-driven investors may prefer to take some risk off. These concerns have affected banks with credit exposure to the raw material sectors. Unsurprisingly, falling commodity prices no longer work as a boon and instead have become a negative factor for risk-takers.

  • USD Long positioning stretched, there could be room for a pullback, or at least a pause, into year end, but we would use any dips in USD as a buying opportunity. US growth story continues to support USD upside,  upbeat retail sales paused the initial pullback this week.
  • EUR Comments from ECB members suggest the committee is moving towards further easing in January. What’s more, with Greek elections now before the end of the year, political risks are rising in Europe, which could add a risk premium to EUR.
  • GBP The BoE believes inflation could fall further, and both economists and markets have pushed back their estimate of the timing of the first hike. What’s more, the latest OBR forecasts suggest that the UK’s fiscal position is worse than previously thought.
  • JPY Corrects in line with global risk assets.The prospect of Abe winning this Sunday’s election seems to be priced in, however the focus may then turn to the weaker growth outlook. This may be determined by weakness in Japan’s trading partners
  • AUD Remain pressured both by domestic growth concerns lower commodity prices and Chinese growth stalling. News that Australian banks could have to raise capital to shore up balance sheets is providing further headwinds to growth. The RBA chief also suggested a preference for the AUD to trade toward 0.75 rather than 0.85.
  • CAD Oil prices have fallen over 40% since the start of June, yet CAD is down only 5% against USD, the least of any G10 currency. CAD’s exposure to a robust US economy renders it the strongest commodity currency, this weeks break of $60 a barrel for WTI crude propelled the loonie to new Year-To-Date highs.

Key Views

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

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