London Session Forex Recap – Jan. 4, 2016

  • Swiss manufacturing PMI: 52.1 vs. 50.1 expected, 49.7 previous
  • French manufacturing PMI: 51.4 vs. 51.6 expected, 51.6 previous
  • German manufacturing PMI: 53.2 vs. 53.0 expected, 53.0 previous
  • Euro Zone manufacturing PMI: 53.2 vs. 53.1 expected, 53.1 previous
  • U.K. manufacturing PMI: 51.9 vs. 53.0 expected, 52.5 previous
  • U.K. net consumer credit: £1.5B vs. £1.3B expected, £1.2B previous
  • U.K. mortgage approvals: 70.4K vs. 69.9K expected, 69.9 previous
  • German Preliminary HICP m/m: 0.0% vs. 0.2% expected, 0.1% previous
  • German Preliminary HICP y/y: 0.3% vs. 0.6% expected, 0.4% previous

Forex price action during the London trading session wasn’t as explosive when compared to the earlier Asian forex session, but there was more than enough volatility and directional movement to keep the session interesting.

Major Events:

Oil recovers a bit – Oil was getting some buyers during the European forex session, with U.S. crude oil up by 0.80% to $37.30 per barrel and Brent crude oil up by a solid 1.42% to $37.81 per barrel. Most market analysts pointed to speculation on what the continuing tensions between Iran and Saudi Arabia could mean for oil production.

Global equities rout continues – European equities were deep in the red, pan-European FTSEurofirst 300 down by 2.82% to 1,396.98 and the DAX down by a painful 4.24% to 10,287.50 during the forex session. U.S. equity futures were bleeding out as well, with the S&P 500 futures down by 1.81% to 1,999.50 and the Nasdaq futures down by 2.09% to 4,492.62 during the forex session. Market analysts were pretty much unanimous in attributing the severe bout of risk aversion to the disappointing Chinese data from earlier, which triggered a large selloff in Chinese equities.

U.K. manufacturing PMI disappoints – The December manufacturing PMI reading for the U.K. was a disappointment since it registered a 51.9 figure, which is way off from the 53.0 reading expected by forex traders, worse than the previous reading of 52.5, and a three-month low to boot. Furthermore, the PMI report from Markit/CIPS concluded that “Performance over 2015 as a whole below that seen in 2014,” which implies that manufacturing production wouldn’t have a lot of positive impact on Q4 2015 GDP growth and may even be a drag on annualized 2015 GDP growth.

Major Currency Movers:

JPY – The risk aversion that dominated during the forex session convinced forex traders and other market players to flee to the safe-haven currencies, with the Japanese yen being the clear safe-haven currency of choice. The yen’s gains were not as spectacular when compared to the forex price action from the earlier Asian trading session, however.

USD/JPY was down by 19 pips (-0.16%) to 118.81, CHF/JPY was down by 51 pips (-0.43%) to 119.02, AUD/JPY was down by 29 pips (-0.33%) to 85.58

CHF – The Swissy is a safe-haven currency as well, but it was arguably the weakest currency during the forex session since it even lost out to the higher-yielding Kiwi and Aussie, which were both feeling some pressure during the forex session. There weren’t any clear catalysts for the weakness, however, and the risk aversion and the better-than-expected manufacturing PMI reading should have pumped up demand for the Swissy. I’ll just point to the usual suspect – the SNB and its policy of weakening the “significantly overvalued” Swissy.

USD/CHF was up by 36 pips (+0.37%) to 0.9987, EUR/CHF was up by 34 pips (+0.32%) to 1.0893, NZD/CHF was up by 14 pips (+0.22%) to 0.6748

CAD – As expected, the prevailing risk-off sentiment discouraged forex traders from loading up on the higher-yielding comdolls (NZD & AUD). However, the Loonie was clearly an exception since it found some buyers and was even putting up a fight against the mighty yen, probably because European forex traders were pricing-in the moderate recovery in oil prices.

USD/CAD was down by 15 pips (-0.11%) to 1.3910, AUD/CAD was down by 39 pips (-0.39%) to 1.0012, NZD/CAD was down by 24 pips (-0.26%) to 0.9398

GBP – The pound was getting some buyers at the start of the forex session, but stumbled a bit after the disappointing PMI reading was released. The pound’s forex price action then diverged since it continued to edge lower against the session winners (USD, CAD, JPY) but won out against the losing currencies (AUD, NZD, CHF).

GBP/USD was down by 3 pips (-0.02%) to 1.4750 with 1.4815 as session high, GBP/CAD was down by 22 pips (-0.11%) to 2.0533 with 2.0592 as session high

GBP/AUD was up by 62 pips (+0.31%) to 2.0512, GBP/CHF was up by 56 pips (+0.38%) to 1.4742

Watch Out For:

  • 2:30 pm GMT: Canadian RBC manufacturing PMI (48.6 previous)
  • 2:45 pm GMT: Markit’s final U.S. manufacturing PMI (no revision from 51.3 expected)
  • 3:00 pm GMT: U.S. construction spending (0.7% expected, 1.0% previous)
  • 3:00 pm GMT: U.S. ISM manufacturing PMI (49.0 expected, 48.6 previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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