The Week That Was
We began the week with a heavily risk-off tone as the Greek referendum delivered a surprise “No” vote shocking many and causing widespread panic that Greece was about to exit the EuroZone. Compounding this risk-off tone was the crisis in Chinese equity markets which saw dramatic losses once more. To put the icing on the cake we also had the release of the FOMC minutes from their June meeting, so all the ingredients were in place from a strong USD rally.
However as the week progressed the situation in Greece turned remarkably positive with many expecting a deal to be struck over the weekend. Chinese markets were also rescued by Chinese officials which has temporarily stemmed the bleeding there. FOMC minutes saw no hint as to a clear lift-off date and the general malaise which has characterised USD trading continued. The week went from risk off to risk on and we simply rotated within ranges.
- USD – Began the week with a positive tone drawing support from the escalation in the Greek situation and the disastrous turn of events in Chinese equity markets. Main focus of the week was the FOMC minutes release from the June meeting. Traders were hoping for some clear hints as to a potential lift-off date but were again disappointed and consequently we saw USD selling off. This USD selling was compounded into Friday with Greece having presented a document detailing reforms with hopes growing for an agreement at or before Sunday’s scheduled meeting. Likewise Chinese equity markets rallied into the weekend on the back of massive buying by the Chinese officials.
- EUR – The Greek roller-coaster ride continued this week following the stunning outcome of the Greek referendum. The ECB well and truly had their bluff called and despite initial EUR selling on fears of a disastrous Greek departure from the EuroZone, we have since turned a corner and there is a lot of optimism for a deal to be struck this weekend causing EUR to rally into the weekend.
- GBP – The UK currency continued to sell off this week as uncertainty over Greece weighed heavily with USD firmly in demand. Weak manufacturing output data added to the bearish tone however GBP recovered late in the week benefiting from the market optimism surrounding Greece. BoE kept rates on hold but following a Budget from the Chancellor which shows a more relaxed fiscal tightening policy than was anticipated, there is a feeling that the BoE has scope to raise rates.
- JPY – The Greek and Chinese situation’s saw safe-haven demand for the Japanese currency set the trading tone for the week. However this JPY buying was reversed later in the week as the risk environment turned more positive following developments in both those situations. Weakness in Japanese data has spurred market anticipation of a less rosy growth outlook to be delivered at next week’s BOJ meeting.
- AUD – Fell early in the week as the situation in China weighed heavily alongside the escalation surrounding Greece. Better than expected Aussie data by away of improved labour statistics offered support which was enhanced as the risk environment turned positive again into the weekend.
- CAD – Another softer week for the Canadian currency which suffered from USD demand and a fall in Oil. Employment statistics on Friday highlighted weakness in the Canadian economy and the focus now turns to next week’s BOC meeting. Having refrained from cutting rates despite clear signs of economic turmoil will we finally see them concede?