Weekly Forex Market Recap: Sept. 20 – 24

It was an up and down kind of week for risk as traders jumped back and for between Evergrande headlines from China and monetary policy speculation.

After the initial dump in risk, the Canada dollar was the one to rule them all by Friday, likely benefiting from the run higher in oil prices as well as on the post-Fed return to risk move.

Notable News & Economic Updates:

Intermarket Weekly Recap

Dollar, Gold, S&P 500, Oil, T-Bond Futures Overlay 1-Hour

Intermarket Price action was pretty uniform this week as traders mainly moved on broad risk sentiment flows. This week, those flows were mainly influenced by the situation in China with Evergrande Group’s debt crisis. There was fear that wide reaching financial market contagion was a possibility, and likely why we saw a big dip in risk assets like equities and oil prices on Monday, while gold, Treasury bonds and the Greenback saw gains.

This persisted into the Wednesday trading session where we saw a turn in broad risk sentiment, likely on news that the PBOC injected $18.6B of liquidity into the banking system to help cool down market fears. The latest monetary policy statement from the Federal Reserve also came on Wednesday, with a little bit of a hawkish tilt but still no solid start date to tapering. These two developments combined are the likely catalysts for the shift in risk sentiment towards positive heading into the Thursday Asia session where asset performance flipped what we saw on Monday: the Dollar, gold and bonds moved lower while equities, oil and crypto rallied.

And speaking of crypto, it was a wild run for the nascent asset class. Not only did it drop like a rock early in the week on Evergrande news before rallying after the Fed meeting, but traders were hit with more FUD on Friday with more crypto crackdown news from China. Performance among the top cryptos were mixed at the end of the week with BTC (-8.50%) and ETH (-10.16%) down, while some of the top alt coins like LUNA, AVAX and HEX closed Friday in the green.

As far as the major currency pairs, the action was pretty inline with the usual tendencies when broad risk sentiment dominates. The safe haven currencies (e.g., JPY, CHF, & USD) outperformed when fear was higher earlier in the week, but then price action got a bit choppy after the Fed’s statement on Wednesday. It seems that traders began to focus on specific currency stories at this point, including fast approaching monetary policy statements from both the Swiss National Bank and Bank of England, and a fresh round of flash manufacturing PMI data from around the globe.

In the end, the Canadian dollar ended up taking the top spot, possibly benefitting not only from the positive shift in risk sentiment on Wednesday, but also on rising oil prices as data showed a decline in inventory. It’s also likely that speculation is growing that Bank of Canada will raise interest rates as Canada’s data continues to improve.