London Session Forex Recap – August 25, 2015

  • China cuts rates for the fifth time
  • Chinese equities drop by 7.63%
  • German Final Q2 GDP q/q: no revision at 0.4% as expected
  • German IFO Expectations: 102.2 actual v.s. 102.0 expected, 102.3 previous
  • German IFO Business Climate: 108.3 actual v.s. 107.6 expected, 108.0 previous
  • German IFO Current Conditions: 114.8 actual v.s 113.9 expected, 113.9 previous
  • Swiss Employment Level: 4.24m as expected v.s. 4.23M previous

Despite another drop in the Shanghai composite index, Forex traders and other market participants had a change of heart during today’s morning London forex session since risk appetite was now the name of the game.

If you took a look at the bullet points above, then you have probably guessed that China’s rate cut was one of the main reasons for the risk-on sentiment. While that event certainly caused risk appetite to gather momentum, the risk-on sentiment was already in play at the start of the London forex session due to a relief rally across the global markets. According to some analysts, this relief rally was brought about by bargain hunters happily loading up on equities and commodities, which were now relatively cheaper.

In any case, the switch to risk-on sentiment caused a reversal of fortunes in the forex market as forex traders dumped the safe-haven currencies (USD,CHF, and JPY) in favor of the higher-yielding ones (CAD, AUD, and NZD). The Loonie, in particular, got a boost when oil prices staged a recovery, with Brent crude oil climbing higher by 2.72% to $43.85 per barrel during the forex session. Oil prices are still near six-and-a-half-year lows, though.

AUD/USD is up by 45 pips (+0.63%) to 0.7226, AUD/CHF is up by 111 pips (+1.66%) to 0.6807

NZD/USD is up by 55 pips (+0.86%) to 0.6536, NZD/JPY is up by 138 pips (+1.79%) to 78.51

USD/CAD is down by 111 pips (-0.84%) to 1.3171, CAD/JPY is up by 154 pips (+1.73%) to 91.13

Among the safe-havens, the Greenback was the strongest, thanks to expectations that U.S. equities will stage a rally too, which caused demand for the Greenback to pick up. S&P 500 Futures were up by 3.91% to 1,944.45 during the forex session while NASDAQ futures were up by 4.40% to 4,179.30.

USD/JPY is up by 109 pips (+0.92%) to 120.12, USD/CHF is up by 88 pips (+0.95%) to 0.9424

Risk appetite for equities caused the DAX to climb by 3.97% to 10,031.30 and Germany released a slew of mostly positive economic data during the forex session. Unfortunately for forex trader who were bullish on the euro, other forex traders were more interested on the other currencies, so the euro ended up being led around by opposing currency price action again.

EUR/USD is down by 71 pips (-0.61%) to 1.1494, EUR/JPY is up by 43 pips (+0.31%) to 138.12, EUR/CAD is down by 209 pips (-1.36%) to 1.5154

As for the pound, it too was being led around by opposing currency price action even though the pound is also considered a high-yielding currency, and despite the FTSE 100 advancing by 3.30% to 6,093.30 during the forex session.

GBP/USD is up by 20 pips (+0.12%) to 1.5791, GBP/JPY is up by 197 pips (+1.06%) to 189.68, GBP/CAD is down by 130 pips (-0.62%) to 2.0820

The forex calendar for the upcoming afternoon London/morning U.S. session has a good mix of lightweights and heavy-hitters lined up, so allow me to get you up to speed.

We’ll begin at 2:00 pm GMT with the readings for the FHFA house price index (0.4% expected, 0.4% previous) and S&P Case-Shiller home prices (5.1% expected 4.9% previous). Both indicators are considered low-tier, so they may not cause the Greenback to react much, but do notice that S&P Case-Shiller home price index is expected to improve, so perhaps that may convince some forex traders to help keep the Greenback supported.

After that, at 2:45 pm GMT, forex traders will get Markit’s preliminary reading for Uncle Sam’s services PMI (54.1 expected, 55.7 previous). Do notice that the it’s expected to decline a bit, but most forex traders and policy makers use ISM’s PMI readings, so the Greenback isn’t expected to react much.

Then, at 3:00 pm GMT, we’ll get the readings for U.S. new home sales (0.51M expected, 0.48M previous) and CB’s consumer confidence index (93.4 expected, 90.9 previous) for Uncle Sam. Both indicators are expected to improve, but pay extra attention to CB’s consumer confidence index since it’s considered a heavy-hitter.

Finally, we’ll have a central banker bonus round at 5:25 pm GMT, with BOC Deputy Governor Lawrence Schembri’s speech at the Canadian Association for Business Economics. You know the drill: keep an ear out for any juicy updates on monetary policy and economic outlook.

Oh, New Zealand’s trade balance (-600M expected, -60M previous) is also expected to come out way late into the U.S. session at 11:45 pm GMT. Do notice that the trade deficit is expected to widen very substantially, so watch out if you are bullish on the Kiwi. Stay frosty!

See also:

Asia Session Recap

U.S. Session Recap

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