The Forex Week In Review

The Week That Was…

Policy makers continue to lead volatility in the global foreign markets with most major central banks outside of the US enacting or embarking on monetary easing via interest rate cuts or extraordinary measures the core theme from the second half of 2014 is alive and well in the early 2015 with market participants firmly fixed on the policy divergence theme and trade.

The other element of policy maker driven volatility is in the shape of the on going combustible negotiations between the new Greek Government and the ECB regarding how the country are to manage their debt and refinancing negotiations with the Troika. this situation has been closely watched this week with headline driven trading ensuing it is likely to remain a the forefront of traders mind heading into next week with the situation largely unresolved.

Highlights of today’s strong US employment report include: the headline 257K plus 2m revisions of 147K; Employment gains were broad-based; the Unemployment rate at 5.7% is a disappointment but comes with a strong participation number (+0.2%) and strong household employment (+759k).At least as impressive is the hourly earnings of 0.5% that undercuts most of the very subdued impressions from the prior month and ties in closer with the ECI data; the hours worked was steady leaving the broadest measure of activity the aggregate hours worked data at 0.2%that is less impressive than other metrics.

This is the kind of data that leaves a June Fed tightening in play, against a first hike priced in for October before the data.

  • USD After over a week when the USD showed a loss of momentum today’s headline employment number was badly needed to try reinvigorate the long USD trade. In the short-term, the latest data will protect the USD’s downside that looked very exposed going into the numbers. To that extent the data surprise should actually reduce volatility. Lastly, the data adds to the medium-term conviction that the Fed will be an important part of the strong USD story later this year.
  • EUR has been subject to whipsaw week being subjected to headline driven flows related to the new Greek governments negotiations with the ECB members regarding its out standing debt obligations and the terms of its refinancing deal with the Troika. Ahead of today’s US data the EUR appeared to be stabilising somewhat but the USD bid this afternoon has taken EUR back towards the lows of the week and the pair look vulnerable heading into the weekend
  • GBP  continued to grind higher through much of the week, yesterdays BOE policy decision to keep rates and the current 375bln asset purchase programme on hold and the accompanying statement that suggested the BOE remained on course to raise rates in the medium term added support the the GBP with further support coming from a two percent rise in UK house prices in January. As we head into the close today positions are being pared in line with broad USD strength.
  • JPY   The addition of Professor Yutaka Harada as the latest board member to the BOJ is viewed as a move which would strengthen and embolden Bank of Japan Governor Kuroda, it is envisaged that Professor Harada would be seen as supportive of Kuroda’s expansionary policies and this would open further likely hood of more policy moves to come. The JPY is one of the big losers on the day as flows chase USD higher, currently the USDJPY look like it will resolve its two week range to the upside.
  • AUD  after printing five year lows this week with the RBA cutting rates on Tuesday the AUD had staged a significant recovery from the mid .76 area, this recovery was in tandem with an improvement in overall commodity prices. The AUD’s improving fortunes were further bolstered with the RBA policy statement overnight which suggested there was little indication of a strong easing bias beyond this week’s 25bp rate cut to 2.25%.
  • CAD The CAD s fortunes which have been inextricably linked to the aggressive decline in crude oil experienced a reprieve in the devastating 10% decline witnessed through January as crude appeared to be finding its legs this week so to did the CAD and as such the pair took a breather from its almost straight line advance of the past month. However at this stage the pull back still looks corrective and with markets continuing to price another move by the BOC this temporary set back looks like a decent opportunity to reposition for more upside in the weeks ahead

Key Views

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

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