The Week That Was…
In a fairly light data week Forex markets were dominated by the sharp volatility we saw across equity and commodity markets as a fresh surge lower in Oil crippled risk-sentiment dragging global equity markets tumbling across the week headlined by EUROSTOXX and the FTSE which both plumbed new three year lows.
This global equity cascade saw a fresh surge of strength in the Japanese Yen as investors fled to safety, accompanied by speculators who continue to aggressively purchase the Yen despite fresh comments from Japanese officials this week which warned that the Japanese Govt will “act accordingly” if Yen strength continued. On Friday BOJ Governor Kuroda confirmed that the BOJ are monitoring movements, though he declined to add further detail.
Comments midweek by Fed Chair Yellen did little to encourage USD bulls as the Chairwoman reiterated the Fed’s commitment to a gradual path for rates but cautioned that worrying global developments could weigh on the US growth outlook. These comments have seen further unwinding of Q1 rate-hike expectations as doubts increase surrounding the health of the global economy.
A minor relief rally in Oil came late in the week on comments by OPEC that members were indeed ready to co-operate on possible supply cuts. However, until something concrete is confirmed markets remain wary.
The Forex Week In Review
- USD Expectations of a Q1 rate-hike are even lower now following Fed Chair Yellen’s comments this week which cautioned the likelihood of global-developments (Oil, Markets, China) weighing on the US growth outlook. Data flow was mixed with a drop in consumer confidence belying better than expected Jan Retail Sales data.
- EUR Another sharp downturn in European equity markets, alongside USD weakness, saw EUR supported this week as the single currency’s inverse correlation with risk fuelled further buying. EuroZone 4Q GDP printed in ine with expectations. As the Euro approaches 1.14 again investor expectations for ECB verbal intervention and indeed further action is growing.
- GBP Sterling was flat this week, weighed upon by crumbling risk sentiment and weak domestic data yet supported by USD weakness. The latest Trade Balance data showed a narowing of the deficit in Dec though Industrial & Manufacturing Production were both below expectations in Dec. The January NIESR GDP estimate was also below expectations.
- JPY A sharp deterioration in risk-appetite fuelled by a further decline in equity and commodity markets saw another strong surge of JPY buying this week despite the BOJ having recently introduced negative rates. Japanese officials commentd on Frday that they are watching the currency markets and will “act accordingly” as the game of chicken between speculators and the BOJ continues.
- AUD The steady decline in equity and commodity markets over the week weighed heavily on the Aussie though further downside was tempered by USD weakness over much of the week. Continued decline in Oil prices and intensifying global-growth concerns are fuelling investor expectations for further action from the RBA.
- CAD Despite a fresh decline in Oil prices, which hit $25 per barrel this week, USDCAD remained hemmed in by an equally weak USD over much of the week. Elsewhere CAD was sharply sold as yet further Oil declines bolster investor expectations for further BOC action.