London Session Forex Recap – July 22, 2015

  • French INSEE Manufacturing Confidence: 102 actual v.s. 101 expected, 100 previous
  • Italian Retail Sales m/m: -0.1% actual v.s. 0.1% expected, 0.7% previous
  • Italian Retail Sales y/y: 0.3% actual v.s. 0.2% expected, 0.0% previous
  • BOE Meeting Minutes: 9-0 vote to hold main rate at 0.50% and asset purchases at £375B/month
  • BOE Meeting Minutes: Greece was a “very material factor” in the decision
  • BOE Meeting Minutes: Strong pound expected to have a direct effect on inflation as a probable drag
  • RBNZ official rate decision and statement coming up

The spotlight was on the BOE MPC meeting minutes during today’s morning London forex session, so pound pairs were naturally on the move. As for the other currency pairs, they were just chillaxing in tight ranges.

The pound spiked higher when the German market opened about two hours before BOE meeting minutes was released. There weren’t really any catalysts then, so it was most likely just pre-emptive positioning. There was an interesting article that came out shortly before the spike, though, and it focused on outgoing MPC member David Miles.

Miles, who has never voted for a rate hike in his six years of MPC membership, will have his last vote this coming August. And when asked on how he will vote in the future, he replied that “I’m sure I’ll have something to tell the grandchildren. What it’ll be, we’ll have to wait and see. It’s never too late.” Forex traders who got wind of that interview probably took it as a hawkish sign since Miles has been one of the most dovish member of the committee.

And when the minutes were finally released, the knee-jerk reaction was to spike even higher. But once the initial euphoria was over, and reality began to finally sink in, the pound found just enough sellers to cause most pairs to range for the rest of the forex session. As to what could have stifled demand for the pound, the most likely culprits were the parts which focused on the pound. Specifically, the minutes stated that an appreciating pound is problematic since it “would be expected to have a direct effect on inflation, bearing down on the CPI relative to the outlook described in the Committee’s May forecast, although the speed and degree of pass-through from movements in sterling was uncertain.”

Scanning through the minutes, another noteworthy tidbit was that uncertainty due to the Greek drama was a “very material factor” in the decision to hold rates, but “absent that uncertainty, the decision between holding Bank Rate at its current level versus a small increase was becoming more finely balanced.” And given the current developments in Greece, I’d chalk that one as optimistic news. Other forex traders probably thought so too, since there weren’t enough sellers to kick the pound down.

GBP/USD is up by 51 pips (+0.33%) to 1.5625, GBP/JPY is up by 91 pips (+0.48%) to 193.49, GBP/CHF is up by 79 pips (+0.54%) to 1.5003

Speaking of Greece, there weren’t any major updates on the Greek drama during the forex session. Greek Prime Minister Alexis Tsipras is still struggling to drum up support from his party before the second bailout vote, but other than that, there wasn’t really anything else.

As for the euro, it too jumped when the German market opened. Currency correlation between the euro and the strong pound was probably in play since there weren’t any catalysts that could account for the sudden surge in strength. After that, the euro and the pound parted ways since the euro began to grind ever lower for most of the forex session.

There were some economic data points released during the session, but they were low-tier and had mixed results. It’s possible that the risk-off market sentiment in the European market stifled demand for the euro, especially before the Greek bailout vote. As it stands now, the DAX is down by 0.95% to 11,494.80 while bond-buying caused German 10-year bond yields to slide down by 1.28% to 0.769%.

EUR/USD is down by 16 pips (-0.15%) to 1.0916, EUR/GBP is down by 33 pips (-0.48%) to 0.6984, EUR/JPY is down by 17 pips (-0.13%) to 135.01

The forex calendar for the upcoming afternoon London/morning U.S. session is a bit on the light side, but forex traders should pay attention since we have a couple of heavy-hitters lined up.

We’ll start with an appetizer at 2:00 pm GMT, as the FHFA house price index (0.4% expected, 0.3% previous) is released. This will then be followed up by the reading for existing U.S. home sales (5.40M expected, 5.35M previous) at 3:00 pm GMT. Both housing indicators are expected to improve, so we may see some demand for the Greenback if the actual readings meet or beat expectations.

Finally, we’ll get the Reserve Bank of New Zealand’s (RBNZ) official rate decision and statement late into the upcoming session at 10:00 pm GMT. Watch out for this one since the consensus among forex traders and market analysts is that the RBNZ will cut rates from 3.25% to 3.00%. Forex Gump wrote a nice summary on why a rate cut is likely, so check it out! Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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