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What a week! Ups, downs and everything in between...

By Nick Parsons

Having suffered a poor Thanksgiving holiday on FOMC concerns about an upturn in inflation, the USD did a bit better this last week. The earlier negative momentum dragged its index down to a low of 92.20 on Monday morning but this proved to be the low of the week. Stronger economic reports (house prices and consumer confidence) and fresh all-time highs for the US stock market helped lift the Dollar index to a high of 93.1 on Friday morning. Fed Governor Jerome Powell’s Senate Confirmation hearing had proceeded smoothly on Tuesday whilst outgoing Chair Janet Yellen sounded more certain about the economy and inflation in an appearance Wednesday before the Joint Economic Committee of Congress. The closely watched PCE numbers were exactly in line with consensus expectations at 1.4% y/y and the S+P 500 index hit a high of 2653 on Thursday. If the week had finished on Friday morning, it would have been a success for both the USD and the equity market. Instead, as the Trump/Flynn story broke, the USD index fell half a percent and at one point the S+P was 25 point slower. Every stock trader knows and believes that dips are for buying: the market regained all its losses in the last couple of hours and the USD finished a net three-tenths of a point higher on the week at 92.57.

The Canadian Dollar had an incredible week. Ahead of the 173rd OPEC meeting in Vienna, it spent the first three days tracking an ever-lower oil price. There are usually some hints and rumours and leaks about production cutbacks but as none of these were forthcoming, NYMEX crude fell from $58.85 all the way down to $57.30. The CAD was sold heavily and USD/CAD reached 1.29 for the first time in 5 months. From 1600GMT on Thursday afternoon, oil rallied 75 cents and by the New York open on Friday was back up at $58.75. This alone was offering some support the CAD, but then came a stunning Canadian labour market report. Consensus expectations were for an increase in November employment of around 10,000. Instead, a total of 79,500 jobs were added, pushing average earnings up from 2.4% y/y to 2.7%. By the end of the North American session, with the US Dollar in retreat on the Trump/Flynn story, USD/CAD had suffered its biggest daily drop in 21 months. The pair crashed from 1.2900 to close at 1.2684 with the CAD surging against every currency. AUD/CAD fell a full cent to 0.9650 whilst NZD/CAD fell 80 pips to 0.8745.

It’s hard to believe that after all the dramas of economic and political news around the world, the Australian Dollar managed to finish the week almost exactly unchanged against the US Dollar at 0.7610. Monday began with an unexpected break lower in the AUD/NZD cross though this was driven entirely by the Kiwi, rather than the Aussie Dollar. Apart from a very brief move to 0.7599, AUD/USD held on to 76 cents throughout the day. Tuesday brought a fall in consumer confidence and a survey showing only 31% of Australians think 2018 will be a better year than this one; the lowest in the 37 years of the survey. Despite an upbeat OECD report on the Australian economy on Wednesday, the AUD continued to edge lower and reached a low of just USD0.7556. Thursday brought a decent set of Q3 Capex numbers which helped the currency stabilize but even a good manufacturing PMI number on Friday couldn’t bring any buyers for the Aussie Dollar. As the Flynn/Trump/FBI story broke in the last trading session of the week, however, the USD dumped and AUD/USD soared half a cent in less than two hours. It was an unlikely comeback following 4 days of very disappointing price action and all eyes will be on the RBA this Tuesday for clues as to whether it can be sustained.

The New Zealand Dollar had a pretty wild week. With no obvious catalysts in terms of news, AUD/NZD broke down on Monday from the relatively tight 1.1060-1.1120 range which had contained it for 3 or4 days previously. The break triggered a series of NZD buy orders across a whole range of currencies and it finished the day by some distance the best performer of all the majors. NZD/USD moved up from 0.6855 on Monday to a high of 0.6940 on Tuesday as the positive momentum continued. Wednesday’s Financial Stability report and the comments by Acting RBNZ Governor Spencer came and went without drama though there was some surprise at a modest easing of macroprudential regulation in the residential mortgage market. The big shock for the NZD came Thursday with a very weak ANZ business outlook report. This showed New Zealand business confidence has tumbled to its weakest since the global financial crisis amid uncertainty over the policies of a new center-left government. A net 39.3 percent of firms expected the economy to deteriorate in the next 12 months; down from 10.1 percent in October and the lowest reading since March 2009. NZD/USD tumbled half a cent to 0.6835 then on Friday it extended losses to 0.6828. When the Flynn/Trump/FBI story broke in New York, however, the pair jumped to 0.6890 and – as with the Aussie Dollar- it ended the week almost exactly unchanged.

What a week for the British Pound, kicking off with the announcement of a Royal Wedding in Spring next year. The political focus was initially on the Brexit Secretary’s refusal to hand full documents to a Select Committee and the possibility that he could be held in contempt of Parliament. GBP/USD held steady around 1.3330 through the day but moved sharply lower Tuesday when the Bank of England’s Financial Stability Report highlighted many of the downside risks to the UK economy and its banking system. GBP/USD hit a session low late in the afternoon of 1.3230 before the totally unexpected headlines that “Britain and EU agree Brexit Divorce Bill”. As this allayed fears of a collapse of the negotiations, the British pound surged. GBP/USD rose to 1.3375 in a matter of minutes whilst GBP/AUD jumped from 1.7370 to just over 1.76. The move extended into Thursday and by Friday morning Sydney time, the GBP hit USD1.3540 and AUD1.7900. We began to sound a note of caution after this move, largely because of talk of some unrest from Conservative MP’s about the size of the Brexit bill, but also because of talk about an Irish border agreement which looked to be unacceptable to the Government’s DUP Coalition partners. Friday brought an 80 pip drop for GBP/USD and though it rallied marginally on the Trump/Flynn story, the GBP crosses were hit hard. GBP/AUD fell almost 2 full cents to 1.7707 with GBP/NZD down 2 ½ cents to 1.9560.

The Euro had a whole series of reversals in both directions before ending the week very slightly lower against the USD at 1.1900. Hopes of a fresh German coalition boosted it to a high of 1.1959 on Monday and though Tuesday brought a very upbeat OECD report, it was in no sense newsworthy and the EUR finished the day lower against every major currency. Wednesday brought stronger than expected German CPI (1.8% y/y) but Thursday saw the Eurozone aggregate weighed down by softer Italian inflation and EUR/USD slipped to 1.1830. Without any particular news catalyst, the EUR rallied strongly Thursday afternoon, reaching a high of USD1.1922 and extended further on Friday to reach 1.1930. We tried to sum up the frustrations of many traders in one of our daily commentaries on Thursday: “Foreign exchange is supposed to be a ‘zero sum game’. Sometimes, though, it just feels there are more losers than winners. For EUR/USD, this is one of those weeks…” After a Friday session which saw the pair trade between 1.1860 and 1.1928, the EUR finished at 1.1900. It was surely a week which many professional FX traders will wish to forget.