Monday started comparatively quiet Asian trading session. The only report was noticed in Japan with the monetary base declining further which was not a huge surprise though. USD/JPY was trying to pare some of the recent losses initially, however, the lack of confidence limited the gains. European trading session started with German retail sales, surprisingly beating the market expectations consensus (+1.1% year-on-year versus -0.7% expected). EU Retail sales report also showed a pick up in consumption in the region with monthly reading increased up to 0.6% compared to 0.2% modest forecasts. That data supported EUR/USD which kept climbing higher towards crucial technical resistance levels. The general weakness was seen for the US dollar options across the board as the US trading session did not bring any positiveness for the greenback. Traders kept buying put options for the world’s reserve currency as ISM Manufacturing PMI slowed down in December (57.6 vs 59.6 expected). In contrast, the Canadian Ivey PMI survey showed stronger manufacturing activity in December with the overall index reaching 59.7 compared to 58.1 previously predicted. USD/CAD was trading in the put-mode, extending losses also amid the bullish run in oil prices.
Tuesday continued the trading week with Australian trade balance, showing some tightening in the exports volume which influenced the general positive gat to decrease down to A$1.930 billion compared to the market expectations of A$2.230 billion. AUD/USD charted an initial bearish reaction on the report, however, traders bought call options heavily later in the day as the demand for USD call options eased. European traders ignored weaker-than-expected German industrial production, postponing the reaction till Friday. EUR/USD gained further strength throughout Tuesday, targeting weekly high at $1.1569. The British pound found a supportive macroeconomic report with Halifax Price index jumping in December. Business and Consumer surveys were rather mixed in the European Union, although the impact was limited as all eyes were on US reports. JOLTs job openings slowed down with the total number of 6.888M compared to 7.063M expected. US dollar index kept sliding towards 12-weeks low levels. Canada reported its trade balance update in December, showing that things aren’t so good as some of the Loonie bulls could have hoped. Nevertheless, USD/CAD was trading in a put-mode again due to the rising oil prices. It was also important to watch the market’s behaviour in the scope of an upcoming interest rate decision by the Bank of Canada the next day.
Wednesday was the most important day of the week, especially in the United States, as binary options traders were focusing on FOMC meeting minutes since the latest interest rates decision. Most of the other reports were mainly ignored by the market, including Japanese Average cash earnings (positive), German Trade balance (EUR 19.08B) and European unemployment report (7.9% vs 8.1%). The only exception was noticed in USD/CAD price action, as the Bank of Canada met for interest rate decision. Although the regulator left the monetary policy at the same level of 1.75%, higher volatility was noticed in the Loonie pairs. BoC Governor Poloz expressed cautiousness in the economic outlook, underlying the need of the wait-and-see position due to uncertain impact on the economy from oil prices and global growth cut. USD/CAD found a local bottom at 1.3178 (weekly low) with most of the traders starting to buy call options for the pair. FOMC was also dovish, supporting options for equities and adding selling pressure on the US dollar index. EUR/USD climbed towards weekly high above 1.1550 technical resistance.
The rest of the trading week showed a different price action with an inverse correlation between global stock indices and currencies. Equities kept climbing towards weekly highs, while traders changed the sentiment in currencies market. EUR/USD was trading in a more put-mode while other high-yield currencies such as Australian and New Zealand dollars were among gainers versus the greenback. The Chinese inflation showed a decline as the CPI report failed to meet the market consensus (1.9% vs 2.1% predicted). ECB published Account of Monetary Policy Meeting, reminding traders that a possible tightening cycle might be postponed due to the lack of certainty in the macroeconomic data. EUR/USD started its two-days bearish run on profit-taking flows, as the pair failed to hold the recent gains above 1.15500. Continuing jobless claims increased in the United States, raising more questions about the sustainability of the labour market to keep posting robust reports in January. Canadian building permits showed a pick up in the housing market. USD/CAD was trading slightly higher than the previous bottom levels - 1.3230.
Friday was positive for the Australian dollar as the country reported stronger-than-expected retail sales, adding the bullish momentum for AUD/USD. Traders even added the volume of buying call options for the currency pair after the US reported weak inflation data. Core Consumer Price Index was published at the level of 2.2% year-on-year, matching analysts’ forecasts. CPI report was noticed at 1.9% level, sliding below 2% mark the first time in almost two years. It’s also worth noting the fundamental support for the British Pound, as UK monthly GDP growth exceeded the economists’ forecasts with 0.2% final revision versus 0.1% expected. GBP/USD gained further strength as traders were buying call options for the pair.