London Session Forex Recap – June 4, 2015

  • U.K. Halifax HPI y/y: 8.6% actual v.s. 8.5% expected, 8.5% previous
  • U.K. Halifax HPI m/m: -0.1% actual v.s. 0.2% expected, 1.6% previous
  • Euro Zone Retail PMI: 51.4 actual v.s. 49.5 previous
  • BOE maintains bank rate at 0.50%
  • BOE maintains asset purchase facility at 375B

Little news and little data, but lots and lots of volatility. Almost all currency pairs were on the move during today’s morning London session, but the spotlight was on the mighty euro, which got a very significant boost when the bond sell-off commenced.

Hail to the all-conquering euro! The euro dominated today’s morning London forex session, boosted by another round of bund selling, with German 10-year bund yields up by 4.90% to 0.921%. What triggered this massive selloff? There are lots of factors, but they all point to the ECB. I’ll try to break it down for ya: (1) In the press conference yesterday, the ECB didn’t show any signs of dovishness. (2) ECB President Mario Draghi even said that higher volatility should be expected, but it won’t affect monetary policy. Some analysts also believe that there has been a sentiment shift with regard to inflation. That’s certainly reasonable since the ECB projected annual inflation to rise by 0.3% for this year 2015, 1.5% by 2016, and then 1.8% by 2017.

What was that? Greece? Pffft! Who cares about Greece? Alright, alright. There were some new developments on the Greek drama, such as Greece rejecting its creditors’ deal proposals as unacceptable and with at least one Syriza party official labeling such proposals as “murderous.” But again, it seems like forex traders didn’t pay too much attention to Greece during the morning session.

EUR/USD is up by 117 pips (+1.05%) to 1.1357, EUR/JPY is up by 130 pips (+0.94%) to 140.91, EUR/NZD is up by 126 pips (+0.80%) to 1.5884

The euro wasn’t the only one making the moves during the forex session. Major euro zone trade partners such as the U.K. and Switzerland got dragged along for the ride too.

Today, the BOE decided to maintain its monetary policy, which surprised absolutely no one. Also, forex traders were probably more interested in the meeting minutes that usually follows in a couple of weeks after the statement. It’s worth noting that the U.K. has been getting sketchy economic data lately, raising doubts about its recovery and making it soft against the other currencies. Just yesterday, disappointing services PMI sent the pound crashing during the London session. But today, the pound is A-Okay! The pound got a significant boost from the skyrocketing euro, which I’m sure was very much welcomed by pound bulls.

GBP/USD is up by 117 pips (+0.77%) to 1.5430, GBP/NZD is up by 106 pips (+0.50%) to 2.1577, EUR/GBP is up by 25 pips (+0.34%) to 0.7362

The Swissy got a nice boost from euro strength too. USD/CHF is currently down by 61 pips (-0.65%) to 0.9293 while EUR/CHF is up by 39 pips (+0.38%) to 1.0556.

Will the awesome level of volatility that dominated the morning London session continue? Well, based on the mid-tier and top-tier items lined up in the forex calendar for the upcoming afternoon London/morning U.S. session, I’d say its a better-than-average probability.

At 1:30 pm GMT, forex traders will get a U.S. jobs data barrage: U.S. initial claims (278K expected, 282K previous), U.S. non-farm productivity (-3.0% expected, -1.9% previous), and U.S. labor costs (6.1% expected, 5.0% previous). Do keep a close eye on weekly initial claims since the prevailing sentiment is that the jobless rate (set for release tomorrow) will stay flat at 5.4%. Oh, let me just stress that I’m only highlighting market psychology because today’s reading won’t really affect tomorrow’s jobless rate. And forex traders may be looking at the historical trend too. So far, initial claims has been within the 270K-280K range, so expect a reaction if the actual reading deviates from that.

Finally, at 3:00 pm GMT, we’ll get the Canadian Ivey PMI (55.0 expected, 58.2 previous). Do note that expectations are for it to decline but still be above 50, indicating industry expansion. But also remember that forex traders have been somewhat neutral on CAD ever since it posted a GDP contraction among other things.

Do you know what time it is? It’s central banker bonus round time! Federal Reserve Governor Daniel Tarullo will speak at the 2015 Institute for International Finance North America Summit. It’s highly unlikely that there will be any juicy updates on future monetary policy, but do keep an ear out. Stay frosty!