London Session Recap – Aug. 28, 2014

  • German Unemployment Change: 2K vs. -5K forecast, 12K previous; Unemployment Rate holds at the forecast/previous reads of 6.7%
  • European Economic Sentiment: 100.6 vs. 101.5 forecast, 102.1
  • European Industrial Sentiment: -5.3 vs. -4.5 forecast, -3.8 previous
  • U.K. CBI Distributive Trades: 37 vs. 27 forecast, 21 previous
  • German Prelim HICP m/m inline with 0.0% forecast, below 0.3% previous

Forex volatility picked up during the London session as we saw another drop in European sentiment and geopolitical tensions flare up in Ukraine.

On the geopolitical front, we saw news today that peace talks between Ukraine and Russia may not be going so well on reports Russian troops have moved into Ukraine, and of cyber attacks on U.S. banks.  Both headlines combined sent the markets into risk aversion mode, and for currencies, that means a return to the safe havens.  This was mainly apparent in the Japanese Yen, which shot up against most of the majors, but pulling back at the moment:

USD/JPY is down 19 pips (-0.19%) to 103.67, EUR/JPY is down 35 pips (-0.26%) to 136.65, and GBP/JPY is down 19 pips (-0.11%) to 171.98

We also got a heavy mix of economic data today from Europe, mostly pointing to more weak reads on sentiment, as well as a weaker-than-expected German unemployment and inflation data.  This sent the euro lower against the majors, but it looks like we’re also seeing the move run out of steam at the moment and pulling back with some of the major pairs.  EUR/USD has climbed back up to being down only 8 pips (-0.05%) to 1.3185 after hitting lows around 1.3170.

Also of note is the broad strength in the Australian Dollar after a surprise positive read on capital expenditures (1.1% vs. -0.6% forecast, -2.5% previous), and the recent improvement in risk sentiment. The AUD/USD is up 25 pips (+0.27%) to .9358, breaking its previous week highs.

The forex calendar for the afternoon U.K./morning U.S. session is lined up with mostly U.S. events to keep the party going for short-term forex traders.

At 1:30 pm GMT, we’ll get a read on Canadian trade conditions in the form of the current account data (forecasted to come in at -11.5B CAD vs. -12.4B CAD previous).  We’ll also see the bulk of today’s U.S. data, including weekly initial jobless claims, the PCE price index, and most notably, the second read on the second quarter GDP reading.  Economists are forecasting the latter to tick slightly lower to 3.9% vs. 4.0%, potentially putting a slight damper on recent bullish U.S. sentiment.

And at 3:00 pm GMT, we’ll get another read on the U.S. housing sector in the form of pending home sales, expected to come in lower as well to a 1% increase vs. 3.5% increase previous.

Finally, geopolitical tensions will continue to be in focus and affect broad risk sentiment as we get to see how U.S. traders will price in the fresh news of Russian moves into Ukraine and cyber attack on banks today.  Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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