London Session Forex Recap – Jan. 14, 2016

  • Italian industrial production m/m: -0.5% vs. 0.3% expected, 0.5% previous
  • German final Q4 2014 GDP q/q: revised higher to 1.7% from 1.6%
  • German final Q4 2014 GDP y/y: revised higher to 0.4% from 0.3%
  • 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
  • ECB minutes: some members wanted a deeper 20 bps cut to the deposit rate

All eyes were on the pound during today’s morning London forex session, thanks to the BOE rate decision and MPC statement. The pound was not the only mover, however.

Major Events:

The Reuters interviewReuters sat down with five unnamed ECB officials earlier today, and the tidbits we got were just delicious for euro bulls. One ECB official stated that “The ECB has done its job, created the space with exceptional accommodation. Now it’s time for others to do their job.” Another noted that “it’s clear that more ECB action will have to come. But it’s going to depend on the impact of the measures already taken and won’t come very soon.” In short, the unnamed officials were sending out vibes that further easing moves were highly unlikely. This is not really that new, however, since some ECB officials have been saying the same things. Just last week, Peter Praet expressed that “the current policy will certainly be in place until March 2017 and longer if necessary.”

Risk aversion strikes back – Risk aversion returned with a vengeance and proceeded to grip the hearts of European market players, with the pan-European FTSEurofirst 300 down by a painful 3.18% to 1,311.76 and the DAX down by 2.86% to 9,674.30 during the forex session. U.S. equity futures were also feeling the burn, with the S&P 500 futures down by 0.13% to 1,879.00 and the Nasdaq futures down by 0.32% to 4,162.50. Market analysts attributed the sour mood to the recent slump in oil prices, the ECB interview, which I already discussed above, and geopolitical risks.

BOE rate decision and statement – As expected, 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. The minutes also noted that all members agreed on the “persistence of the headwinds weighing on the economy,” so “when Bank Rate does begin to rise, it is expected to do so only gradually and to a level lower than in recent cycles.” The minutes also added that “The actual path that Bank Rate will follow over the next few years will depend on the economic circumstances.” Basically, it was mostly a rehash of the previous meeting minutes, but BOE officials were optimistic that “the depreciation of sterling over the previous two months would add somewhat to imported cost pressures.”

ECB minutes – The ECB finally released the minutes for their December huddle, but most of the contents were already stated or implied during the Dec. 3 ECB rate statement and press conference, so there wasn’t really anything for forex traders to chew on. One thing worth pointing out is that “some members expressed a preference for a 20 basis point cut in the deposit facility rate,” but they went with a 10 basis point cut since it was “seen as unlikely to trigger material negative side effects and was also seen as having the advantage of leaving some room for further downward adjustments, should the need arise.”

Major Currency Movers:

GBP – The pound was pretty weak across the board for most of the forex session due, perhaps, to the risk aversion that plagued the markets and expectations that the BOE minutes are gonna be dovish again. However, the BOE minutes were not as dovish as most forex traders expected, so some pound shorts probably began covering, pushing the pound higher.

GBP/USD was down by 15 pips (-0.11%) to 1.4393 with 1.4360 as session low, GBP/JPY was down by 50 pips (-0.29%) to 169.62 with 169.00 as session low, GBP/CHF was down by 57 pips (-0.39%) to 1.4467 with 1.4392 as session low

EUR – The euro started the forex session by soaring higher due to capital flows from the European equities rout. Although many analysts were also pointing to the Reuters interview I discussed above. The euro later encountered intense selling pressure after the ECB minutes came out, probably because of the revelation that some members wanted a deeper cut, or that the 10 bps cut had room for more easing, or both.

EUR/USD was 38 up by pips (+0.35%) to 1.0898 with 1.0943 as session high, EUR/AUD was 101 up by pips (+0.65%) to 1.5795 with 1.5823 as session high, EUR/NZD was 211 up by pips (+1.26%) to 1.6913 with 1.7025 as session high

NZD – The prevailing risk-off sentiment naturally meant that all comdolls (NZD, CAD, AUD) were under pressure during the forex session, with the Kiwi being the weakest among them. Heck, the Kiwi was the weakest currency during the forex session, period. There were no catalysts for the severe weakness, however.

NZD/USD was down by 50 pips (-0.78%) to 0.6450, NZD/CAD was down by 68 pips (-0.74%) to 0.9261, AUD/NZD was up by 66 pips (+0.62%) to 1.0770

CHF – If the Kiwi was the weakest, then the safe-haven Swissy was certainly the strongest since it managed to give ALL of its forex rivals the boot. But the Swissy did suffer a bit when the ECB minutes came out.

USD/CHF was down by 32 pips (-0.32%) to 1.0051 with 1.0009 as session low, NZD/CHF was down by 74 pips (-1.13%) to 0.6480 with 0.6429 as session low, AUD/CHF was down by 35 pips (-0.51%) to 0.6981 with 0.6924 as session low

Watch Out For:

  • 1:30 pm GMT: Canadian HPI (0.2% expected, 0.3% previous)
  • 1:30 pm GMT: U.S. import prices (-1.3% expected, -0.4% previous)
  • 1:30 pm GMT: U.S. initial jobless claims (275K expected, 277K previous)
  • 9:45 pm GMT: New Zealand’s food price index (-0.2% previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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