The Week That Was…
Forex markets saw a sharp reversal in recent trends this week with commodity markets rebounding as expectations over the likelihood of a US rate increases this year continue to wane. Oil broke out through the descending trend line running from 2014 highs whilst the US dollar traded firmly lower. Key central bank releases saw the ECB, BOE & The Fed all citing the downside risks to inflation and global growth as key concerns with the BOJ too citing the risk from slow down in emerging market economies.
Traders now look ahead to key data releases next week with both UK & US CPI the headline risks events. Chinese CPI will be closely watched next week also with further Chinese data coming shortly after the Asian open on Sunday with New loans & aggregate financing, which will likely set the risk tone for the week.
USD The Dollar was broadly weaker over the week extending losses from the release of the dismal September jobs report. FOMC minutes release this week was Doveish citing increased downside risk to inflation and global growth. Markets continue to push rate-hike expectations into next year with CME Fed Watch now pricing only a 39% chance of a December hike with March 2016 the first full pricing.
EUR The single currency was higher over the week amidst Dollar weakness whilst continuing to rotate around shifting risk sentiment. The strong inverse correlation with risk seeming to breakdown this week as Equity markets traded higher also. ECB minutes release this week saw the ECB citing increased downside risks to inflation and the willingness to intervene further if needed though no extension of QE has been discussed as yet. Comments made by the ECB’s vice president during an interview at the IMF’s yearly meeting stated that lower oil prices and a fall in the Euro would boost the EuroZone economy, downplaying the need for further stimulus.
GBP September services PMI data disappointed UK bulls this week showing marked weakness with a print of 53.3 against the expected 56. Sterling was weaker across the board except for strength seen against the Dollar & the Yen. The BOE’s October meeting saw the Central Bank striking a more Doveish tone than expected stating their veiw that inflation was likley to remain below 1% until spring of 2016. Sterling received some support from comments made by BOE’s Carney during the IMF session that a UK rate hike was independent of Fed lift-off timing as he reiterated his view that the issue of a rate rise will come into play around the start of 2016.
JPY Focus this week was on the BOJ October monetary policy statement with some players expecting the Central Bank to increase its stimulus. However, the BOJ made no policy adjustments and dismissed the idea of negative rates in the near future. JPY was broadly weaker amidst reduced safe-haven flows as commodities rebounded. Despite the monetary policy statement there is still a large expectation that the BOJ will increase stimulus on October 30th.
AUD The Aussie strengthened across the board this week maintaining strength amidst short reductions following the RBA’s neutral meeting and a continued rebound in commodity markets this week, fuelled further by the Doveish FOMC minutes.
CAD The rebound in Oil prices this week has seen the Canadian Dollar continue to strengthen, recovery ground sharply against the US Dollar. Friday employment data put a dent in an otherwise shining week for the Loonie as the unemployment rate was seen to tick up to 7.1%