London Session Forex Recap – Dec. 10, 2015

  • French manufacturing production m/m: -0.5% vs. 0.1% expected, -0.1% previous
  • French industrial production m/m: 0.5% vs. -0.1% expected, 0.0% previous
  • French CPI m/m: -0.2% vs. 0.0% expected, 0.1% previous
  • Swiss Libor rate: unchanged at -0.75% as expected
  • Swiss deposit rate: unchanged at -0.75% as expected
  • U.K. trade balance: -£11.8B vs. -£9.8B expected, -£8.8B previous
  • MPC meeting minutes: as expected, 8-1 vote to hold main rate at 0.5%
  • MPC meeting minutes: 9-0 vote to hold asset purchases at £375B/month

Lots of events and reports for today’s morning London forex session, so price action didn’t fail to impress. Risk sentiment was in play as well since the safe-haven Japanese yen was attracting a lot of buyers.

Major Events:

Disappointing French economic dataManufacturing output in France contracted by 0.5% instead of expanding by 0.1% for the October period, which was a real bummer for the euro zone, and hence, the euro since France happens to be the second biggest euro zone economy after Germany. Industrial production was able to advance by 0.5%, however, but this was mostly due to a 5.9% increase in output for the “electricity, gas, steam and air-conditioning supply” sub-component due to “a cold spell in October,” according to the report from Insee, so the increase is probably not sustainable. Insee also reported that France’s CPI dipped by 0.2% in November, which was another bummer since forex traders and market analysts were expecting it to flatten out.

SNB rate decision and statement – As expected, the SNB kept the target range for the 3-month Libor rate unchanged between -1.25% and -0.25% or -0.75%. The SNB also maintained the interest rate on sight deposits at -0.75% as expected. SNB officials also upgraded their inflation forecast to -1.1%, up by 0.1% from the previous meeting, but they maintained their forecast for Switzerland’s 2015 GDP at just under 1.0%. SNB Chairman Thomas Jordan also tried to jawbone the Swissy in his statement by saying his usual mantra that “the Swiss franc is still significantly overvalued.” And Jordan also repeated his usual promise (or threat) that the SNB “remains active in the foreign exchange market in order to influence the exchange rate situation.” Overall, nothing new forex traders to chew on.

BOE rate decision and statement – The BOE’s monetary policy committee (MPC) voted 8-1 to keep the bank rate on hold at 0.5% and 9-0 to hold asset purchases at £375B per month, but forex traders traders were already expecting that. Anyhow, the MPC meeting minutes also revealed that MPC officials were expecting to CPI “to remain below 1% until the second half of the year.” They also pointed out that wage growth flattened out recently due to various possible factors, including the fall in average working hours and the low CPI levels, which make it harder for employees to negotiate higher pay. Lower wages due to lower inflation due to lower wages. Now that’s what I call a vicious cycle.

Risk aversion won’t go away – It was another red day for European equities, with the pan-European FTSEurofirst 300 down by 0.29% to 1,426.45 during the forex session, which is apparently a two-month low. Commodities also resumed bleeding out, with gold down by 0.31% to $1,073.20 per troy ounce during the forex session.

Major Currency Movers:

GBP – Pound pairs were mostly range-bound during the forex session, although some pound pairs began to show signs of weakness when the U.K. reported a bigger-than-expected hole for its trade balance. But the real selling party began when the MPC members released their rate decision and meeting minutes. The decision to maintain monetary policy was already expected by forex traders, but the overall dovish tone of the MPC members was reason enough to expect that the BOE won’t be hiking rates anytime soon.

GBP/USD was down by 40 pips (-0.27%) to 1.5132, GBP/JPY was down by 92 pips (-0.50%) to 183.78, GBP/CAD was down by 77 pips (-0.38%) to 2.0488

JPY – Today’s morning London forex session was another risk-off trading session, so forex traders were naturally flocking to the safe-haven currencies (USD, JPY, CHF), with the Japanese yen being the safe-haven of choice once again. Strangely enough, the Swissy was the weakest among the safe heavens since it lost out to both the Greenback and the yen. Maybe forex traders were wary of the SNB Jordan’s threat about intervening in the markets in order to weaken the “significantly overvalued” Swissy?

USD/JPY was down by 33 pips (-0.27%) to 121.41, CHF/JPY was down by 54 pips (-0.44%) to 123.05, EUR/JPY was down by 91 pips (-0.68%) to 132.95

EUR – The euro was broadly weak from the start of the forex session and remained weak for the most part. The euro’s weakness was most likely due to the disappointing economic reports from France, but rhetoric from ECB officials were probably a factor too. ECB Executive Board Member Yves Mersch, for example, said in an earlier speech that “We [ECB officials] have a mandate to fulfill within the eurozone and as we have said, we are determined to maintain what we consider the necessary further accommodative stance of monetary policy by all the means that are at our disposal.”

EUR/USD was down by 53 pips (-0.48%) to 1.0943, EUR/CHF was down by 28 pips (-0.27%) to 1.0803, EUR/NZD was down by 98 pips (-0.61%) to 1.6201

Watch Out For:

  • 1:30 pm GMT: U.S. initial jobless claims (270K expected, 269K previous)
  • 1:30 pm GMT: Canadian new house price index (0.1% expected, 0.1% previous)
  • 6:30 pm GMT: BOE Governor Mark Carney has a brief speech in London; not related to MPC meeting and decision, though
  • 7:00 pm GMT: U.S. Federal budget (-$66.0B expected, -$136.5B previous)
  • 9:30 pm GMT: New Zealand’s BNZ manufacturing PMI (53.3 previous)
  • 9:45 pm GMT: New Zealand’s food price index (-1.2% previous)

See also:

Asia Session Forex Recap

U.S. Session Forex Recap

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