Weekly Forex Market Recap: Sept. 26 – Oct. 1

Forex price performance was mixed and choppy this week, indicating that traders put a little bit more weight on individual currency stories, rather than just focusing on broad market themes and risk sentiment.

The Aussie, Loonie, and Greenback took the top spots this week, while the euro, Sterling and the Kiwi rounded out the bottom spots at the Friday close.

Notable News & Economic Updates:

Crude oil hits three-year highs on supply shortages in Europe

China power crunch spreads, shutting factories and dimming growth outlook

Powell, Lagarde say elevated inflation will prove temporary

Evergrande set to miss second offshore bond coupon payment this month, sources say

Natural gas drops 7%, sharpest decline since January following big run-up on supply concerns

Mexico’s central bank hikes rates to 4.75% on inflation concerns

Colombia central bank raises interest rate to 2%

China’s manufacturing activity unexpectedly shrinks in September, services offer support

Evergrande misses $180 million interest payment

Crude oil takes hits as OPEC mulls another production increase

Global factories struggling as supply constraints hit, costs rise

Intermarket Weekly Recap

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

With rising odds that central banks may tighten monetary policy sooner-than-expected to combat rising inflation rates, rising bond yields was the top story earlier this week. The rapidly rising U.S. Treasury 10-year yield was the main focus for market players on Monday and Tuesday, and likely why we saw early week weakness in risk assets like equities and crypto, as well as weakness in gold prices and bond prices. Oil prices were a bit oblivious to this environment as an energy supply crisis emerges, pushing up natural gas and oil prices alongside bond yields.

The momentum in these moves slowed down a bit by the Wednesday session, where we began to see assets and forex pairs kind of moving to their own beat at that point. Equities remained on its downtrend, likely on elevated interest rates, and debt ceiling fears in the U.S.

Gold and oil picked up some buying pressure, with the latter rallying on strong Chinese demand. And crypto assets found a bid on Thursday after SEC Gensler reiterates support for crypto futures ETF, as well as on comments from Federal Reserve Chair Powell that the U.S. has no plans to ban crypto assets.

By Friday, broad risk sentiment flipped positive, possibly on the news from the pandemic front that there is a now a covid pill from Merck that reduces the risk of hospitalization, death by half for some patients. We also got news that U.S. President Biden signed a stopgap bill to fund gov’t until Dec. 3.

As far as the major currency pairs, again we saw mixed performance and atypical correlations. In what was arguably a negative risk environment most of the week with inflation fears, net negative economic updates, and geopolitical risks (e.g. Evergrande debt crisis, U.S. debt ceiling) in focus, we saw the Aussie and Loonie outperform alongside the U.S. dollar. It’s likely the Aussie found buyers on the idea of Australia reopening its borders in November, and the Loonie on oil’s strength early in the week.

On the other side of the spectrum, weakening eurozone data and the energy crisis is likely what had traders lightening their load on the euro and British pound. While the risk aversion environment was likely the reason we saw the Kiwi take last place, and possibly on reports of New Zealand seeing its highest number of covid cases yet.