London Session Recap – July 24, 2014

  • Positive surprise from European Flash PMI data – Manufacturing PMI 51.9 vs. 51.7 forecast, 51.8 previous; Flash Services PMI 54.4 vs. 52.7 forecast, 52.8 previous; Composite PMI 54.0 vs. 52.8 forecast, 52.8 previous
  • U.K. Retail Sales weaker-than-expected – headline m/m 0.1% vs. 0.3% forecast, -0.5% previous; core -0.1% vs. 0.3% forecast, -0.5% previous

Solid pop for forex volatility for the morning London session thanks to positive European PMI and weak U.K. retail sales data.

Markit released their monthly Purchasing Managers’ Index numbers today, showing through a survey of thousands of companies that European managers thought conditions were improving in July.  Most data points read above the 50.0 contractionary/expansionary level, citing cost cutting as a driver of the positive reads.

French manufacturing remains to be a sore spot among the data, holding back the manufacturing sector from keeping pace with the services sector.  The reaction from forex traders was immediately bullish on the news, understandable as it was a nice break from the weak economic data from recent weeks.  Euro pairs are up on the session but slowing down a bit heading into the U.S. open:

EUR/USD is up 12 pips (+0.09%) to 1.3473, EUR/JPY is up 33 pips (+0.24%) to 136.92, and the big mover of the session is EUR/NZD, up 226 pips (+1.46%) to 1.5684.  This was mostly due to the RBNZ signaling they will pause further hikes for now after today’s decision to raise the main rate to 3.50% from 3.25%.

We also saw action in the British Pound this morning thanks to weaker-than-expected retail sales data from the U.K.  While is was a positive read and better than previous, it was below expectations and a low enough number at 0.1% to indicate a downward trend in this data point since the beginning of the year.

We saw a quick reaction to the downside for Sterling, most notably bringing GBP/USD down to nearly test the major psychological level of 1.7000 and holding GBP/JPY below the 173.00 handle.  Similar to the moves in the Euro, we’re seeing stabilization ahead of the U.S. open, but don’t be surprised if the momentum picks up from there.

The forex calendar for the Thursday afternoon U.K./morning U.S. trading session may see limited volatility with only a few mid-tier economic events from the U.S.

At 1:30 pm GMT we’ll get the weekly unemployment claims number, with expectations around 307K new claims vs. 302K from the previous week.  This is a second tier number where the reaction is usually mild and short-lived, if the number comes way of forecast/previous reads.

At 2:45 pm GMT, Markit will release their U.S. manufacturing PMI number, expected to come in at 57.5 vs. 57.3 previous.  If the European numbers are any indication, we could see the upside read, but this marked as a low tier event so we may not see any kind of significant reaction without a big surprise, especially one to the downside.

To wrap up U.S. data for the day, at 3:00 pm GMT we’ll get the New Home Sales number for another read on the U.S. housing market.  The forecast is for around 480K new homes vs. 504K previous, and with housing prices and existing home sales surprising to the upside this week, we could see positive reads from today’s data point as well.  We may get the biggest change in volatility from this number, as well as the increase in volatility from the U.S. equities market (due to earnings season) to influence broad risk sentiment behavior.  Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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