The dollar ends the week stronger against the yen but slightly lower against the euro as the forex market remained fixated on the Federal Reserve, pivotal technical levels in the dollar pairs and developments surrounding Germany’s Deutsche Bank.
The first presidential debate between the Democratic and Republican candidates elevated the dollar when forex players viewed Hillary Clinton’s win as victory for current trade agreements and a “business as usual” presidency. But the dollar couldn’t break through resistance at 101.35, the 23% retracement of the July 21 high of 107.48 and August 16 low of 99.53 until the end of the week when a triple-digit rally in the Dow extinguished the safe-haven bid for the yen, and Japanese month-end data indicated higher joblessness and sluggish household spending. USD/JPY ended the week with a very modest 0.3% gain at 101.34.
Deutsche Bank was plagued this week by worries that a $14 billion fine by the U.S. Justice Department could cripple Europe’s third largest bank. When hedge funds that clear derivative trades through Deutsche were reportedly cutting their exposure, global equities tanked, taking the euro down in sympathy. This prevented EUR/USD from closing above a key retracement level all week. EUR/USD finally cleared 1.1233, fueled by rumors that the DOJ was prepared to settle with the bank for roughly a third of the proposed fine, extinguishing worries that the bank would collapse. EUR/USD closed with a very slim gain at 1.1238.
Cable barely missed a fourth straight weekly loss as expectations for Brexit to undermine the UK economy continued to weigh. Weekend press warned of a “hard exit” that could be exacerbated by the pre-emptive Brexit impact on UK business. Also weighing on sterling were remarks from Bank of England member Minouche Shafik who cautioned that more monetary accommodation would be necessary. GBP/USD moved up in the first half of the week, but reversed at 1.3050 to head back to trendline support at 1.2960, closing nearly unchanged against the dollar at 1.2980.