That all started with the Chinese economy reported GDP growth in the fourth quarter of 2018. It was in line with the market expectations, however, the slowest growth pace in 28 years (6.4% year-over-year) made investors cautious. Chinese yuan kept falling versus the greenback and across the board, while Japanese yen strengthened on risk-aversion flows. Traders were mostly buying put options for Asian stock indices as concerns over the economic slowdown were reinforced. German inflation figures were released later on Monday and Producer Price Index disappointed traders who were buying put options for most of the Euro pairs except EUR/GBP. That inflation report was also important in the light of the upcoming ECB meeting later that week. The US markets were closed for the holiday and low volatility was the main feature of the price action. British Prime Minister had a press conference, presenting her Plan B to the nation and, generally speaking, it was a supportive factor for the British pound.
Tuesday’s Asian trading session was comparatively quiet due to the lack of any major macroeconomic report but volatility came in later as the British economy reported a surprisingly strong Labour market data. Employment change was robust enough (141K jobs created in December, versus 88.0K predicted earlier) while Average Hourly Earnings showed a jump in wages (+3.4% versus 3.3% expected) and Unemployment Rate fell to 4.0% from 4.1% previously, which has to be taken in the count by the Bank of England. GBP/USD accelerated its uptrend also due to the announcement that political parties are seriously intended to support May’s Plan B for the soft Brexit. German ZEW Institute published its survey for the economic situation in the largest European economy with the current conditions worsened in January. German ZEW Economic Sentiment Index was also in the negative territory but a bit stronger than it was anticipated. The same index but for the whole EU was in green deeply, which was immediately reflected on Euro’s downtrend, especially versus the Sterling. Manufacturing and Wholesale Sales fell in Canada and USD/CAD gained strength with WTI crude oil prices falling. Existing Home sales declined in the United States and stock indices were sliding lower on that news.
Call options for New Zealand dollar were in demand on Wednesday as the country’s stronger-than-expected inflation report renewed pressure on RBNZ to hike the interest rates. Japan published its trade balance report with all figures in red: Imports volume grew by only 1.9% in December, Exports dropped by -3.8%, while trade balance surplus widened the negative gap to -55B compared to -30B predicted by analysts. The Bank of Japan left the interest rates unchanged at the same level of -0.10%, stating that more supportive measures are getting ready to be imposed by the regulator. As a result, the Japanese Yen was gaining strength as investors were rushing to buy put options for high-risk currency pairs and assets. The next round of volatility was noticed during the New York opening. Canada reported weaker-than-expected Retail Sales in November (-0.9% month-over-month), while the core reading was also in red (-0.6%). USD/CAD traders were massively buying call options on Loonie’s weakness and the pair tested 1.3370 resistance. The lack of significant macroeconomic data in the United States was the key driver for the greenback’s strength, however, US stock indices managed to find a local bottom as traders started to buy call options for high-yield assets.
Thursday was the best day for the Australian dollar as the country’s labour market data was positive for the Aussie. So, employment change was noticed at the level of 21.6 thousand new jobs in December, compared to 16.5K predicted earlier. Participated Rate slowed down a bit but Employment rate dropped to 5.0% from 5.1% in November. The binary options market reacted with heavy-volume demand for AUD/USD and AUD/JPY. Manufacturing Purchase Managers Index was in red in France, Germany and European Union, while services PMI had slight improvements. That was another brick in the wall of Draghi’s dovishness. The European Central Bank left the interest rates and deposit facility rate unchanged at the level of 0.00% and -0.40%, respectively. That means another period of additional liquidity to be injected into the financial system. Euro reacted by the sell-off in major pairs including EUR/USD and EUR/GBP. ECB President Mario Draghi did not say anything clear about the term of the upcoming tightening cycle by the regulator. The Britsh pound was also consolidating recent gains throughout the whole day on Thursday as the political situation was unclear in the scope of the upcoming vote in the Parliament. A hard non-deal Brexit is the worst scenario for the pound and its gossip was shadowing the financial markets in the UK. Oil prices fell sharply on Thursday due to the stronger-than-expected US crude oil inventories. The headline figure jumped to 7 million barrels while a decline of -0.04 million barrels was widely expected.
Tokyo Core CPI reported a sudden jump in inflation (1.1%), however, USD/JPY remained flat during the Asian trading session. Not much of the volatility was seen in Europe as well. German business expectations kept worsening, according to the Ifo institute. The real price action came together with the American trading session as the US government shutdown story came to an end. At least temporarily. US President signed the bill, stock indices and other high-risk assets soared, including GPB/USD and NZD/USD. WIT Crude oil recovered some of the recent losses which also helped USD/CAD to come back to the support levels around 1.3200. The price of gold surged as major shifts were seen in the fixed-income market, especially in US 10-year Treasuries. That story has to have a development in the upcoming week, so stay tuned for our updates.