The crazy month of July has ended and August started on a high note as markets ended the week with uplifted spirits. Key central bank meetings and developments maintained the volatility for this week.
European Central Bank (ECB) President Mario Draghi stayed prominent this week and made an indication that the ECB will work with the governments to buy a considerable amount of bonds to help abate Eurozone's debt crisis.
On Friday, the US Labor Department reported that the US economy produced 163,000 non-farm jobs in July, a number much higher than economists expected. While this bodes well for the US economy, it is important to note that the country needs 11.7 million jobs created to reach the US pre-recession employment level.
The markets cheered for the developments. Stocks soared, sending S&P500 climbing to its highest level since May. European stock markets, particularly Italy & Spain were up around 6%. Oil and gold were also up.
On the currency front, the major currencies started slow and stayed relatively quiet during the first half of the week, and volatility only got invoked from Wednesday onwards. Euro continued to perform well.
EURUSD was sloppy during the start of the week, but jolted up and then down 260 pips in both directions ending about 20 pips from the week's high and the 1.2400 mark. This is a significant move as EURUSD has only been able to close above 1.2300 on two occasions in about a month. Staying above 1.2300 will cement the changing sentiment and give bulls enthusiasm to forge a move higher. Meanwhile, GBPUSD retraced nearly all of last week's 300-pip upmove, but eventually ended the week range bound above 1.5600. With the risk on sentiment and jolly mood of the markets on Friday, AUDUSD mirrored EURUSD and ended at the week's high.
For the coming week, the market will be looking at the Reserve Bank of Australia rate decision, Bank of England's Inflation report, European Central Banks Monthly Report, and employment reports out of Australia and Canada.
Are we seeing heightened volatility or a new trend emerging in the currency front? We will surely find out in the coming weeks.