London Session Forex Recap – Dec. 3, 2015

  • French final services PMI: 51.0 vs. no revision from 51.3 expected
  • German final services PMI: no revision fom 55.6 as exepected
  • Euro Zone final services PMI: 54.2 vs. no revision from 54.6 expected
  • U.K. services PMI: 55.9 vs. 55.0 expected, 54.9 previous
  • Euro Zone retail sales m/m: -0.1% vs. 0.2% expected, -0.1% previous
  • Euro Zone retail sales y/y: 2.5% vs. 2.6% expected 2.9% previous
  • ECB maintains refinancing rate at 0.05% as expected
  • ECB maintains marginal lending rate at 0.3% as expected
  • ECB cuts deposit rate to -0.3% from -0.2% as expected
  • ECB press conference coming up
  • U.S. Fed Head Yellen will testify before the Joint Economic Committee later

The ECB delivered on a highly-anticipated rate cut during today’s morning London forex session, causing the euro to skyrocket (while dragging the Swissy with it). Wait, what?

Major Events:

Mostly poor readings for the euro zone – A string of services PMI readings for various euro zone members came out during the forex session, ending with the services PMI for the entire euro zone, and it wasn’t pretty because the final reading was revised downward from 54.6 to 54.2. On a slightly happier note, the euro zone’s final services PMI for the November period is still a 3-month hight and a very slight improvement when compared with October’s 54.1 figure. Moving on, retail trade volume in the euro zone was a downer since it contracted by 0.1% month-on-month instead of expanding by 0.2%. According to eurostat’s report, this was due to a 0.5% fall in demand for “food, drinks and tobacco” and a 0.4% decline for automotive fuel.

Rise in U.K. services PMI – Unlike the disappointing PMI readings for the manufacturing and construction sectors, the United Kingdom’s services PMI for November was better-than-expected at 55.9 and a nice improvement over the previous month’s 54.9. According to the PMI report from Markit and CIPS, the jump was due to the new work and overall business activity growing at a 4-month high. On a more downbeat note, employment grew at the slowest pace in three months. Also, respondents remained somewhat optimistic that business will improve, but “the strength of sentiment was little-changed from October’s two-and-a-half year low.”

ECB cuts deposit rate by 10 basis points – As expected, the ECB cut deposit rate by 10 basis points from -0.20% to -0.30%. This will take effect on December 9. The main refinancing rate was maintained at 0.05%, however, and the same was true for the marginal lending rate, which was held steady at 0.3%. Also, the ECB noted in their short statement that “Further monetary policy measures will be communicated by the President of the ECB at a press conference starting at 14:30 CET (1:30 pm GMT),” so watch out and watch it live here.

Major Currency Movers:

EUR – The euro was mostly weak for most of the forex session, probably because of the string of mostly negative readings for the euro zone, although it’s also possible that some forex traders (who were late to the party) were opening preemptive short positions ahead of the ECB’s rate decision.

Anyhow, the euro then began skyrocketing across the board 2 whole minutes before the ECB’s rate decision was officially supposed to come out, as forex trades who have been betting that the ECB will be cutting rates began unwinding their positions 2 whole minutes before the decision was released. Two. Whole. Minutes. Either my clock is broken or some lucky people got an early look at the ECB’s decision (or somebody jumped the gun).

UPDATE: My clock is broken apparently since it was 7 minutes, not two. Sam Ro from Business Insider has more.

EUR/USD was up by 125 pips (+1.19%) to 1.0712 with 1.0518 as session low, EUR/JPY was up by 145 pips (+1.11%) to 132.05 with 129.87 as session low, EUR/GBP was up by 65 pips (+0.92%) to 0.7157 with 0.7045 as session low

CHF – The Swissy was just mostly ranging for most of the forex session and minding its own business when it was suddenly dragged along for a ride by the ECB’s rate decision due to the close trading relationship between Switzerland and the euro zone. Although I wouldn’t discount forex traders fleeing to the safe-haven Swissy as well since there was a sudden shift in sentiment from risk-on to risk-off. The pan-European FTSEurofirst 300, for example, was up by 0.74% to 1,523.99 just before the ECB’s rate decision, but it’s now down by 0.49% to 1,505.47. Talk about a sudden change in sentiment, huh?

USD/CHF was down 104 pips (-1.02%) to 1.0112, CAD/CHF was down 79 pips (-1.04%) to 0.7589, AUD/CHF was down 54 pips (-0.73%) to 0.7425

Watch Out For:

  • 1:30 pm GMT: ECB press conference; you can watch it live here
  • 1:30 pm GMT: U.S. initial jobless claims (268K expected, 260k previous)
  • 2:45 pm GMT: Markit’s final reading for U.S. services PMI (no revision from 56.5 expected)
  • 3:00 pm GMT: U.S. Fed Chairperson Janet Yellen will testify before the Joint Economic Committee
  • 3:00 pm GMT: U.S. factory orders (1.4% expected, -1.0% previous)
  • 3:00 pm GMT: ISM’s non-manufacturing PMI (58.0 expected, 59.1 previous)
  • 6:10 pm GMT: U.S. Fed Governor Stanley Fischer has a speech at the Cleveland Fed’s conference

See also:

Asia Session Forex Recap

U.S. Session Forex Recap

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