London Session Forex Recap – Oct. 22, 2014

  • BOE MPC minutes released: 7 votes to leave rates unchanged vs. 2 votes to hike

The economic calendar was pretty empty for the morning London session, but we got a spike in volatility for currencies thanks to a Spanish report that at least 11 EU banks are set to fail the upcoming stress tests this weekend. This pushed broad risk sentiment towards risk-off, and obviously put the euro under a lot of pressure as capital fled from European assets during the morning trade. The initial reaction pushed euro pairs quickly lower (EUR/USD below the 1.2700 handle to 1.2680) but euro pairs seems to have stabilized the weakness for now.

The other big news story of the session is the one expected event of the morning: the Bank of England’s monetary policy meeting minutes.  As expected, there were only two votes for a rate hike, but the rest of the MPC crew were firmly against raising rates as they saw few signs of inflation pressures despite the rising currency.  Sterling fell on the news, but quickly found support and bouncing higher to erase the initial losses. GBP/USD was down as low as 1.6010 before bouncing to current levels around 1.6050. This may be an opportunity for the traders who missed the initial drop to jump in at a better price if the bearish sentiment remains on the British pound.

The forex calendar for the afternoon London/morning U.S. session is packed with top tier data from both the U.S and Canada to keep currency traders on their toes.

At 1:30 pm GMT, we’ll get Canadian retail sales data and U.S. consumer price inflation data, both of which are big potential market movers for their respective currencies.  The Canadian retail sales data is forecasted to improve to around 0.0% from -0.1%, but the reaction may be muted with the big central bank coming up later today.  And for the U.S. CPI data, the forecast is for an improvement there as well (0.0% vs. -0.2%), but still inline with the general downtrend in data for 2014. This could have a strong short-term impact on the Greenback, especially if we see another weak read in either the headline or core reads.

At 2:00 pm GMT, the Bank of Canada will issue their monetary policy report and interest rate decision.  The forecast is for the BOC to leave the main interest rate at 1.00% and that they will maintain a neutral stance on the future outlook of monetary policy.  The Loonie tends to jump around on this event, so it’s definitely a good idea to re-assess Canadian dollar orders and positions before this news hits the wires. Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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