The Forex Week In Review

The Week That Was…

A busy week for Forex markets with a raft of issues affecting rates. The Dollar started the week softer on the back of the dovish FOMC and was led lower by weaker US data. Comments from Fed’s Lockhart concerning a summer rate hike buoyed the buck and indeed we saw the Dollar stage a midweek comeback as risk aversion flows surged on the escalating conflict in Yemen. JPY was a beneficiary of these safe haven flows whilst EUR bore the brunt of the USD rebound. Oil prices also rebounded , driven too by the Yemenese situation, seeing commodity currencies climb.

The picture in to the weekend remains mixed, with growing political concerns abounding, not just stemming from the Greek situation but also the mixed electoral picture in Europe, lead by the UK, which now teeters on the brink of deflation. Next week’s US payrolls number is the key volatility risk with markets still chained to USD positioning adjustment, and following the Fed’s statmemnt that any rate hike will be data-dependent, it is certainly going to be keenly observed.

  • USD Having fallen for the first half of the week on softer data, USD managed to stage a midweek resurrection and climb back to the weekly opening price as risk aversion kicked in seeing US Treasuries well bid. The softer data in line with last week’s dovish FOMC could see the USD lull continue a while longer but growth is expected to pick up soon and we are ever nearer to a rate hike, so over the medium term, USD strength should prevail. Fed’s Yellen will be speaking tonight at 19.45GMT.
  • EUR Conversely to the Dollar’s story of a mid week comeback , EURUSD took a beating into the second half as longs were liquidated on the Dollar rebound. Concerns remain over Greece and elections in Europe are presenting a fragmented political picture which could manifest itself in many country’s national elections this year. This political uncertainty will not support EUR.
  • JPY Another positive week for the Japanese currency which has benefited greatly from market’s risk aversion driven by uncertainty in the Middle East and equity market valuation. Accompanying this risk aversion inflow have been signs of reflation with wages picking up. The USD rebound weighed heavier on EUR than JPY due to JPY’s safe haven status. Medium term picture is still for Dollar strength to re-emerge.
  • GBP A low risk appetite is causing a reduction of investor inflows into the UK, keeping the currency weak. CPI printed a low of 0.0%Y highlighting the increasing risk of the UK dipping into deflation over the coming months. While this supported retail sales, we could see a shift in sentiment from the BoE. This coupled with the uncertainty surrounding Britain’s farcical political landscape should weigh on GBP.
  • CAD The rebound in oil prices this week, driven by the escalating conflict in Yemen, saw commodity currencies rally, with the Canadian currency a grateful beneficiary. There is still the issue that loans made to the oil sector could come back and bite the Canadian banking sector and even with the prospect of US economic growth supporting the country, USD still remains the stronger buy.
  • AUD Having rallied early in the week driven by rebounding oil prices, the Australian currency fell late into the week as the Dollar rebounded. Overall the picture for the AUD remains that USD strength will re-emerge and see the currency fall once more in line with the longer term downtrend.

Key Views

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