The Forex Week In Review

The Forex Week In Review

Currency markets this week were dominated by a continuation in the risk sentiment roller-coaster which continues to drive markets taking its cue from Oil price movements. Oil surged higher this week as Saudi Arabia and Russia struck a deal to free Oil output at January levels. The deal was initially met with disappointment due to speculation that the terms of the agreement (other Oil producers agreeing also) would fail due to perceived obstruction by Iran.Iran however unexpectedly backed the deal, to push Oil higher still as optimism grew. Moves were tempered however on news of a record build in US crude Oil inventories which sent prices plummeting lower again.  Despite weakness into the end of the week, equity markets, which have mapped the moves in Oil, managed to hold on to gains to register a positive week.

Overview

  • USD January FOMC minutes revealed a Dovish tone to the meeting, as expected, with the Fed citing a deteriorating economic environment since December with growing downside risks. The minutes were largely seen as confirming expectations that a March rate hike is off the table. January CPI was better than expected, holding unchanged against an expected -0.1% loss, with core inflation registering its biggest gain in over 4 years.
  • EUR Euro was driven lower this week as equity markets surged higher on an improved risk-appetite. ECB January meeting minutes endorsed market expectations that further easing is likely to come in March. Expectations were fuelled further as the OECD slashed EuroZone 2016 growth outlook to 1.4% from 1.8% previous.
  • GBP Sterling was heavily weighed upon this week by a set of weaker-than-expected January inflation figures, followed by an increase in Unemployment. The UK currency is also currently under pressure as “Brexit” concerns build with UK PM Cameron currently taking part in a “make or break” two-day summit to secure better terms for the UK’s membership of the EU. Markets are anticipating sharp GBP weakness if a UK exit from the EuroZone does occur.
  • JPY Despite a recovery in risk appetite this week, the Japanese Yen was still continually throughout the week as speculators continue to play chicken with the BOJ. BPJ Governor Kuroda this week called for coordinated action by central banks to stabilise global markets, his comments come ahead of the G20 meeting which is due to take place later this month.
  • AUD Alongside resurgent US Dollar strength, the Australian Dollar found itself under pressure this week as the Unemployment rate unexpectedly ticked higher. Resilient labour conditions have been the backbone of the AUD bullish view over recent months, despite weakening inflation, and this development strikes a blow to the heart of this outlook.
  • CAD A recovery in Oil this week bolstered the Canadian Dollar which improved across the board, further supported by a set of stronger than expected January inflation figures, tempering expectations for further BOC easing.