The Biggest Currency Movements of The Week
It has been a busy week in the Forex markets, with political discussions affecting two of the major currency pairs - the GBP/USD and the USD/CAD. Let's explore these currency pairs in greater detail:
GBP/USD
The media has been suggesting that the British and German governments may abandon critical Brexit demands, whereby Germany is ready to accept a less-detailed agreement in order to complete a deal. On the flip-side, the UK will have a more vague statement of intent on their future relationship. This deal has two aspects: a transition deal - so that Brexit that would be orderly, followed by both sides focusing on the negotiated future trading relationship. The aim was to have an outline of that future relationship before the Brexit deadline of 29 March 2019. During his parliamentary speech, the UK Brexit Secretary Dominic Raab confirmed that more negotiations need to be arranged regarding the details of the future trade agreement, after the UK leaves the EU.
Raab also stated that the part of the deal focusing on the future "ought to look more like an instruction to the parties to get on and implement the model and effectively flesh out the detail" after the UK has left. He also added that the declaration on the long-term partnership should not just set out a "nebulous and unclear destination point." GBP was sent soaring after his speech, and the traders who went long could have made some significant profits.
As you can see in the chart above, traders who joined the long trade as soon as the previous camarilla pivot W L4 broke to the upside, would have made a significant profit. The consecutive big blue candle (known as the marubozu candle) also made a move of 154 pips!
USD/CAD
The second big mover of the week was the USD/CAD currency pair. Concerns over NAFTA have weighed heavily on the Canadian dollar, with both Canadian and US negotiators trying to reach an agreement after a missed deadline on Friday. On the contrary, the US and Mexico reached an agreement in August, leaving Canada out in the cold. Unsurprisingly, the Canadian dollar lost its ground on Labor Day as a result, dropping initially. The probable outcome of negotiations will be Canada making some concessions, for example, reducing hefty tariffs which protect the Canadian dairy industry. However, Canada will only compromise so far, with Prime Minister Justin Trudeau stating that no deal is better than a bad deal.
Additionally, the Bank of Canada released its monthly rate statement later on Wednesday, with policymakers expected to hold rates at 1.50%. The rate decision came precisely as planned. The reason for that was also the uncertainty over the NAFTA negotiations with the US. The FED is likely to raise rates later in September, and possibly also in December, and the BoC will need to make a move as well. If it does not happen, there is a slight risk of declining business investment in Canada. Moreover, the Canadian dollar would likely lose ground, as the increase in interest rates in the US would make the greenback more attractive to investors. We can view the evidence of all of these events within the chart below.
Beginning with an ascending scallop formation, the USD/CAD has broken through the W L3 pivot point, and has continued the move straight to the upside. This was a great trading opportunity for all traders as the movement was almost in a single direction for more than 130 pips.
Economic Announcements For Next Week
Next week (Sep 10- Sep 14) will be a decidedly interesting one for traders:
On Thursday the BoE will make their decision regarding the official bank rate, including the Monetary Policy Statement. If you would like to track these announcements, together with, their associated forecasts, be sure to check out our Forex calendar. The statement is among the primary tools the MPC uses to communicate with investors about monetary policy. It contains the outcome of its vote on interest rates and other policy measures, along with commentary about the various economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes. This will present an excellent opportunity for traders to capitalise on currency movements, we can also expect the whole GBP currency basket to move by a considerable amount during and after the event. So, for next week, expect a lot of movement in all GBP crosses.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.
