Weekly market overview October 29 - November 2

The risk-on sentiment is back to markets. Emerging market currencies were leading the gains versus the U.S. dollar in Forex this past week. Euro bounced off the year’s low, the British pound recovered most of the previous week’s losses while the Japanese yen kept weakening. Commodity currencies such as Aussie and Kiwi had an impressive rebound as well. The Canadian dollar was hovering around flat levels amid an acceleration of the sell-off in WTI Crude oil and despite positive Economic data. All those changes in price action compared to October were driven by U.S. stock indices picking up the bullish momentum. Shall we see the market reversal in November compared to the brutal market crash in October, or is that just a retracement before the bears continue? This is the main question for the financial markets worldwide in the upcoming week.

The U.S. dollar index was testing 2-month high (97.17) in the first half of this past week. The 10-year bond yields rise was influenced by robust economic data and rumours about the Federal Reserve to hike the interest rates further were dominating among market players. However, worldwide equities posted a sudden rebound in the last day of October on the overall risk appetite, and the greenback was sold off due to the growing demand for high-yield assets. The weekly result was almost flat for DXY (+0.06%), leaving questions about the sustainability of such a bullish run. The stronger-than-expected U.S. Non-Farm Payrolls report did not help the index to hold weekly gains versus almost all of its peers excluding Japanese yen. The upcoming trading week’s price action will be impacted by the Fed meeting and rate decision on Thursday.

EUR/USD was under the bearish pressure initially as European economic data and negative performance of the EU equities were weighing on the single European currency. Although the most popular currency pair tested year lows around 1.13 round figure, the bulls stepped in with heavy-volume buying and lifted EUR/USD above 1,1400 on the impressive one-day rally on Thursday. Inflation in Germany and Eurozone was the key report this past week and it came in with a surprisingly positive reading. The financial issues in Italy eased investors’ worries and the greed-fear barometer shifted to the left side in the second part of the trading week, helping EUR/USD to rebound from important technical support levels. The currency pair would remain offered below 1.1462 moving average, however, a potential breakthrough of that resistance might lead to further gains towards 1.16 figure.

The British pound showed the most volatile performance among major currencies, soaring 300 pips on Thursday after a progress in Brexit negotiation was announced. Sterling loves false breaks before reversing and flying sky-high, so we would not be surprised if such a scenario happened again. Fresh rumours are announced on Sunday, in the time of writing this article. British Prime Minister Theresa May is about to announce the Brexit deal with the European Union, underlying the progress in such tough issues like Irish border and trade conditions. The speculation suggests that she managed to convince EU partners in the need of a compromise. We would see the weekend gaps in all sterling pairs including GBP/USD on Monday market opening if those rumours confirmed. Moreover, the pair would soar to 1.35 and above in a blink of an eye if the Brexit deal was officially announced.

The weakest currency among the majors was the Japanese yen. USD/JPY ended the trading week with gains of around 1%, breaking through several technical resistance levels. The key driver was the Bank of Japan, announcing ‘unchanged’ rate decision. The continuation of the ultra-soft monetary policy was confirmed by the regulator during Kuroda’s press conference and the speculative flows kept supporting the pair. Another important condition for the dollar-yen to rise was the bullish retracement in global equities with the U.S. stock indices leading the recovery. If that continued, we would see the level of 115.00 yen per dollar sooner rather than later. Cross-rates such as EUR/JPY and GBP/JPY soared as well.

Source: FXStreet

Aussie and Kiwi showed the first signs of a reversal in the recent downtrend and we might see AUD/USD and NZD/USD strengthening further in the week ahead which is crucial for currency traders as both RBA and RBNZ meet next week for interest rates decision. The dovish rhetoric eased, internal economic data improved, the Chinese reports showed that the things are not so bad for the export-oriented Australian and New Zealand economies. Add here the overall risk-on sentiment and you will get the combination of factors driving both commodity currencies to bounce from extremely oversold levels. A further strength is likely.

The Canadian dollar should have been following other commodity currencies, especially on the positive employment data released on Friday. However, the fundamental structure of the Loonie is much more dependant on the price of WTI Crude oil which kept declining in the past week. So, USD/CAD was hovering around 1.31 level without any clear direction. The black gold accelerated its losses, breaching a long-term technical support level around $66.00 per barrel. Moreover, the weekly losses of the price of oil posted one of the worst performances since May 2017 (-7.22%). The U.S. inventories, as well as the shale export production, grew this week. The global demand’s growth remains under a huge question. Leading oil producers cannot agree to cut the daily oil output. All those factors weigh and we expect a further slide in WTI Crude.

One of the most dramatic price action has been seen in emerging markets this past week. Argentine Peso, the worst-performing currency in the world this year, had rocketed more than 16%. A deal with the International Monetary Fund has been announced while the local central bank hiked the interest rates to unprecedented high levels. Other emerging markets currencies, such as Turkish Lira, soared as well, underlying the postponed demand for high-risk assets worldwide. The upcoming week is about to show whether is that the start of a new trend, or will the liquidity crisis vows keep concerning investors.
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