London Session Forex Recap – Nov. 21, 2014

  • U.K. Public Borrowing (PSNB ex interventions) dips:  7.7B GBP vs. 7.7B GBP forecast, 11.2B GBP
  • Bearish euro comments from ECB President Mario Draghi
  • People’s Bank of China cuts interest rates: refinancing rate was cut 0.40 points to 3.60% and the one-year deposit rate just got cut 0.25 points to 2.75%

At the a banking conference in Frankfurt, European Central Bank President Mario Draghi hit the markets with commentary highlighting the importance of bringing back inflation, and that the ECB is open to more monetary policy easing. The idea of potentially more stimulus coming to the markets body slammed the euro on the news, and it looks like it may be down and out for the count for the session:

EUR/USD is down 116 pips (-0.93%) to 1.2425, EUR/JPY is down 164 pips (-1.12%) to 146.48, EUR/CAD is down 178 pips (-1.27%) to 1.3992

The other big news coming out during the morning London session is that People’s Bank of China cut interest rates–the first since 2012–to combat recent signs that the high growth rates in China are decelerating.  As with most interest rate cuts, we saw a swift change in risk sentiment towards risk taking, which in forex terms means a weaker Japanese yen (safe haven currency) and a rally in the commodity currencies, especially with China’s close trading partner’s currency, the Australian Dollar. Big moves in those currency pairs, especially when the two main events of the day are combined, creating some strong directional moves:

EUR/AUD is down 247 pips (-1.96%) to 1.4250, AUD/JPY is up 95 pips (+0.81%) to 102.66, and AUD/CHF was the big winner of the day, up 182 pips (2.21%) to .8427

The forex calendar for the Friday afternoon London/morning U.S. session is near barren with only Canadian consumer price inflation data in the lineup at 1:30 pm GMT. The forecast is for the monthly read to dip lower to -0.2% versus 0.1% previous, while the core reading is forecasted to stay inline with the previous reading of 0.2%.

The core reading is the one most economists focus on as it gives a better look at the trend; it excludes the more volatile components like agriculture products, gas and oil, and mortgage interest costs. With exception to the summer months, the core number show positive gains throughout 2014, so we could see the same on this release and potentially a bullish CAD reaction. And vice versa if the read comes in negative.

Because of the lack of any other scheduled events, it’s likely forex traders will continue to focus on the surprises from the European Central Bank and Bank of China. Look for further volatility in the euro, as well as the comdolls and the Japanese yen on a shift in risk sentiment. Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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