London Session Forex Recap – Nov. 20, 2015

  • German PPI m/m: -0.4% vs. -0.2% expected, -0.4% previous
  • German PPI y/y: -2.3% vs. -2.0% expected, -2.1% previous
  • UK public net borrowing: £7.5B vs. £5.5B expected, £8.3B previous
  • UK public net borrowing (banks excluded): £8.2B vs. £6.0B expected, £9.1B previous
  • Canada’s CPI and retail sales readings on tap

The pound and the euro both got torpedoed during today’s morning London forex session. Meanwhile, the  high-yielding Aussie was quietly sucking up most of the demand for riskier assets during the trading session.

Major Events:

UK budget deficit – The UK had a £7.5 billion hole in its budget during the October period, which is tad bigger than the expected £5.5B. Excluding public sector banks, public borrowing increased by £1.1 billion to £8.2 billion when compared with October of the previous year, which is also bigger than the expected £6.0 billion. Moreover, public sector debt at the end of October was £1,526.8 billion, which is “equivalent to 80.5% of Gross Domestic Product, an increase of £70.4 billion compared with October 2014,” according to the report from the UK Office for National Statistics.

Steady risk appetite – There was a fair amount of risk-taking in the European markets, with the pan-European FTSEurofirst 300 up by 0.30% to 1,506.81 and the DAX up by 0.42% to 11,132.30 during the forex session. Apparently, European equities are set to have the best week in a month. And US equity futures weren’t too bad either, with the S&P 500 futures up by 0.26% to 2,084.75 and NASDAQ futures up by 0.23% to 4,670.75 during the forex session.

ECB Draghi’s speech – ECB President Mario Draghi gave a speech today, and he noted that “the strength of the underlying [euro zone] recovery is modest,” but downside risks to inflation and growth have increased “due to the deterioration of the external environment … especially in emerging markets.” He also said that the ECB Governing Council “will thoroughly assess the strength and persistence of the factors that are slowing the return of inflation towards 2%,” and that they “will do what [they] must to raise inflation as quickly as possible” if necessary. Basically, he merely reiterated what was already revealed in the ECB minutes released yesterday and the ECB press conference from a couple of weeks back.

Major Currency Movers:

GBP – The bigger than expected hole in the UK’s budget is just the latest in a string of poor economic data for the UK this week. If y’all recall, Tuesday revealed that UK headline CPI was still in the red and we saw that retail sales volume printed a bigger-than-expected contraction yesterday. And while risk appetite was able to save the high-yielding pound during yesterday’s London forex session, today was different because the pound was bleeding red across the board.

GBP/USD was down by 25 pips (-0.17%) to 1.5247, GBP/CAD was down by 33 pips (-0.17%) to 2.0302, GBP/AUD was down by 83 pips (-0.39%) to 2.1149

AUD – Aussie pairs extended their gains from the earlier Asian session, or to be more precise, most Aussie pairs extended their weekly gains during the forex session since many Aussie pairs were able to reach new intra-week highs. There weren’t any clear catalysts for the high-yielding Aussie’s strength, so I’m chalking that to the prevailing risk-on sentiment.

AUD/USD was up by 13 pips (+0.18%) to 0.7211, AUD/NZD was up by 47 pips (+0.43%) to 1.0995, AUD/CAD was up by 20 pips (+0.21%) to 0.9598

EUR – ECB Draghi may have only been parroting the contents of the meeting minutes and what he said during the ECB presser, but his continued dovish tone was more than enough to convince forex traders to dump the euro. After ECB Draghi’s speech, euro pairs were able to recover due, perhaps, to profit-taking by short-term European forex traders who want to avoid weekend risk. The recovery was short-lived, however, as most euro pairs began to feel renewed bearish pressure.

EUR/USD was down by 8 pips (-0.08%) to 1.0680, EUR/JPY was down by 26 pips (-0.20%) to 131.20, EUR/AUD was down by 41 pips (-0.28%) to 1.4816

NZD – Despite the prevailing risk-on sentiment and a lack of direct catalysts, the Kiwi was slowly grinding ever lower during the course of the forex session. The Kiwi’s overall weakness was most likely due to profit-taking since it’s the end of the trading week and most Kiwi pairs actually had a relatively strong performance during the week.

NZD/USD was down by 14 pips (-0.21%) to 0.6555, NZD/CAD was down by 21 pips (-0.25%) to 0.8726, NZD/JPY was down by 27 pips (-0.34%) to 80.52

Watch Out For:

  • Headline (0.1% expected, -0.2% previous) and core (0.2% expected, 0.2% previous) readings for Canada’s CPI at 1:30 pm GMT
  • Headline (0.1% expected, 0.5% previous) and core (-0.4% expected, 0.0% previous) readings for Canada’s retail sales also at 1:30 pm GMT
  • Eurostat’s consumer sentiment survey for the euro zone (-7.5 expected, -7.7 previous) at 3:00 pm GMT
  • New York Fed President William Dudley will talk about the US economy at 4:15 pm GMT

See also:

Asia Session Recap

U.S. Session Recap

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