Analysis written BY retail traders FOR retail traders
Weekly wrap: Monday 3rd to Friday 7th October 2016
A fascinating week in the forex market this week which was supposedly focused on the US employment figures and yet delivered so much more. Below is your quick summary of what happened last week.
In the early part of the week money poured into the USD expecting a healthy search following Friday employment figures. The week started with positive manufacturing and nonmanufacturing PMI’s as well as strong factory orders. However, the main event did somewhat disappoint and while average hourly earnings delivered as expected non-farm payroll underperformed and the unemployment rate increased. However, in the background labour participation rate increased and the non-farm payroll figure for August was revised up. So what does that mean? Essentially it still leaves us with a 60/40 chance of an interest rate rise in December and this is currently priced into the futures market. The Fed will be desperate to put through a modest hike this year therefore unless other figures disappoint as we approach December the likelihood is further dollar strengthening. FOMC minutes are due next week and that will be quite key in terms of the language used.
Relatively quiet week last week although did struggle significantly against the USD, but primarily due to USD strength. Mixed PMI figures from across European states saw very little movement in the single currency. The one area that continues to improve is Germany, the eurozone’s largest economy, with strong factory orders and industrial production. However, the right wing anti-European sentiment continues to grow, none more so than in Italy at present, and while the Deutsche bank problems may have subsided many feel it’s just a matter of time before the next banking crisis hits the Eurozone. ECB minutes also showed an emphasis on outside risks to growth.
Very little to say about the Japanese yen this week other than it still remains one of the most challenged currencies. The Tankan underperformed slightly but the fundamental problem with the yen at the moment is that despite throwing huge amounts of resources at the ailing economy the Japanese government cannot purchase growth. While still considered a safe haven the only real chance of the yen strengthening presently would be a risk off movement in the market.
This had to be the story of the week with Sterling dropping to 30 year lows against the USD. In the early hours of Friday morning as the US session closed and the Asian session opened, perfect timing for low liquidity, the GBP dropped 800 pips against the US dollar. Some feel this was in a reaction to the French Foreign Minister highlighting the fact that the UK would not be given access to the single market and that a hard Brexit was the only option, others felt it was in response to the Conservative party conference which also made similar rumblings. There is also a suggestion of algorithmic and “fat finger” trading which may have caused the crash. It’s unlikely we will know for some time to come but as retail traders it reminds us how volatile the market can be and how important it is to have stop losses :-). It took approximately four minutes to recover 600 pips and you could look at the currency and suggest that surely it should be bullish from here, but in reality we just don’t know.
Some good figures helping support the Canadian dollar last week with employment improving, the ivey PMI significantly beating expectations and the relatively positive Bank of Canada Business Outlook Survey. The Canadian dollar has also been supported by the stabilisation of oil prices over recent months and with continuing discussions with OPEC around limiting production this continues to support the currency. Should oil prices start to fall then we could see the Canadian dollar start to weaken further.
As anticipated the RBA held interest rates at 1.5% earlier in the week citing low inflation and low wage growth as still a significant risk. Later in the week the Aussie dollar had some good news with retail sales improving beyond expectations which is a good indicator of future inflationary figures.
Very little news coming out of New Zealand apart from the release of the GDT (Global Dairy Trade) figures. New Zealand relies heavily on dairy prices as a major export and a 3% reduction in price certainly helped weaken the currency a little this week.
Source: Article written by Andi Thornton for Charles Clifton Forex Trader
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