London Session Forex Recap – Jan. 12, 2016

  • French BoF business sentiment: 99 vs. 98 expected, 98 previous
  • U.K. industrial production m/m: -0.7% vs. 0.1% expected, 0.1% previous
  • U.K. industrial production y/y: 0.9% vs. 1.7% expected, 1.7% previous
  • U.K. manufacturing production m/m: -0.4% vs. 0.1% expected, -0.4% previous
  • U.K. manufacturing production y/y: -1.2% vs. -0.8% expected, -0.2% previous
  • U.S. NFIB small business index: 95.2 vs. 95.4 expected, 94.8 previous

Forex traders were giving the pound a mighty good pounding during today’s morning London session due to disappointing readings for U.K. industrial production. The pound wasn’t the only mover, though.

Major Events:

European equities resume rally – Risk appetite planted its flag deep during the European forex session, with the pan-European up by 1.56% to 1,355.89 and the DAX up by a very solid 2.52% to 10,075.00. U.S. equity futures were also in the green, with the S&P 500 futures up by 0.59% to 1,924.75 and Nasdaq futures up by 0.66% to 4,299.75 during the forex session.

Market analysts can’t really put their finger on the catalyst for the positive risk sentiment given that risk aversion was the name of the game during the earlier Asian forex session, with the Nikkei 225 closing 2.71% lower to 17,218.96, which is the lowest in nearly a year. But market analysts did note that retail companies were leading the way.

Poor U.K. industrial production reportIndustrial production for the November 2015 period was pretty dismal since it reported a 0.7% month-on-month contraction when it was expected to expand at the same pace as the previous month. Also, manufacturing output declined by 0.4% month-on-month, fouling expectations that it would print a 0.1% recovery after a 0.4% slide during the previous month.

Most of the other sectors were also printing negative numbers or stagnant. The only industries which were in positive territory were chemical production, sewerage, other manufacturing & repair, and “wood, paper & printing.” Overall, not a pretty sight for the British economy and the pound since the recent string of negative readings will likely drag down U.K. Q4 2015 GDP growth.

Major Currency Movers:

GBP – The pound actually started the forex session on a strong footing, probably on the back of improving risk sentiment. However, the pound immediately got kicked lower across the board when the readings for U.K. industrial and manufacturing output came out, which may convince BOE Guv’nah Mark Carney to be more dovish in his speech for later. More importantly, the poor readings could weigh heavily on the sentiment of BOE officials, with the BOE rate decision later this week in focus.

GBP/USD was down by 104 pips (-0.73%) to 1.4417, GBP/AUD was down by 275 pips (-1.32%) to 2.0631, GBP/CAD was down by 201 pips (-0.97%) to 2.0498

EUR – The euro was on the defensive for most of the forex session. There weren’t any major catalysts for the broad-based euro weakness, but it’s highly likely due to capital flows from the low-yielding euro to riskier assets, such as European equities, given that risk appetite prevailed during the forex session.

EUR/USD was down by 44 pips (-0.41%) to 1.0848, EUR/CAD was down by 101 pips (-0.65%) to 1.5422, EUR/CHF was down by 106 pips (-0.64%) to 1.6583

AUD – The risk-on sentiment naturally meant that all the comdolls (AUD, NZD, CAD) were getting some lovin’ from forex traders, with the Aussie getting the most love. However, no catalysts can account for the Aussie love during the forex session. There was even a report during the session that China’s Q4 2015 GDP is expected to slow down substantially, but that didn’t seem to faze forex traders.

AUD/USD was up by 46 pips (+0.68%) to 0.6992, AUD/NZD was up by 47 pips (+0.44%) to 1.0688, AUD/CAD was up by 41 pips (+0.42%) to 0.9940

Watch Out For:

  • 2:15 pm GMT: BOE Governor Mark Carney is scheduled to speak
  • 3:00 pm GMT: U.K. NIESR GDP (0.6% previous)
  • 3:00 pm GMT: U.S. IBD consumer optimism (47.5 expected, 47.2 previous)
  • 3:00 pm GMT: U.S. JOLTS job openings (5.41M expected, 5.38M previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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