London Session Forex Recap – Jan. 19, 2016

  • German Final HICP y/y: unrevised at 0.2% as expected
  • Swiss PPI m/m: -0.4% vs. -0.2% expected, 0.4% previous
  • Euro Zone current account: €26.4B vs. €19.3B expected, €25.6B previous
  • U.K. CPI m/m: 0.1% vs. 0.0% expected, 0.0% previous
  • U.K. CPI y/y: 0.2% as expected vs. 0.1% previous
  • U.K. core CPI y/y: 1.4% vs. 1.2% expected, 1.2% previous
  • German ZEW economic sentiment: 10.2 vs. 8.0 expected, 16.1 previous
  • German ZEW current conditions: 59.7 vs. 53.1 expected, 55.0 previous
  • Euro Zone ZEW economic sentiment: 22.7 vs. 27.9 expected, 33.9 previous
  • Euro Zone final HICP y/y: unrevised at 0.2% as expected
  • Euro Zone final core HICP y/y: unrevised at 0.9% as expected
  • BOE Carney: Now is not yet the time to raise rates
  • Dairy auction currently underway

There were tons of reports during today’s morning London trading session, but forex traders had their sights on the pound due to the CPI readings for the U.K. and BOE Carney’s speech. So, what happened and how did the pound react?

Major Events:

Positive U.K. inflation readings – The December period inflation readings for the U.K. were released today and they were pleasantly better-than-expected. Headline CPI rose by 0.1% month-on-month and 0.2% year-on-year while the core reading advanced by 1.4%, which is better than the previous month’s 1.2%. Looking at the details of the report, the price of food and non-alcoholic beverages became more of a drag (-0.32% vs. -0.19% previous) while transport costs were less of a drag (-0.02% vs. -0.21% previous). The main driver, meanwhile, was still the increasing costs of restaurant and hotel bills (+0.21 vs. +0.28% previous), as well as the continuing rise of tuition fees (+0.12% vs. +0.22% previous).

BOE Carney’s speech – The head honcho of the BOE gave a speech during the Peston Lecture in London today. It seemed like a pretty standard speech, with him praising the resilient U.K. banking system. It then began to sound serious when he started talking about the “softness in nominal GDP growth” and other problems the U.K. is currently facing, as well as the differences of said problems to the situation in the United States. Then, BAM! He hit forex traders with a solid blow to the gut when he stated without mincing words that “now is not yet the time to raise interest rates” and that “not enough cumulative progress has been made to warrant tightening policy.” Those particular statements probably convinced pound bulls to smash the “get me outta here” button as quickly as they can since the pound began weakening across the board after that.

Strong appetite for risk – Risk appetite was here to stay during the morning London forex session, with the pan-European FTSEurofirst 300 up by a solid 2.22% to 1,322.03 and the DAX up by 2.03% to 9,714.00. The risk-taking also looks set to spillover into the U.S. session since U.S. equity futures were on the up and up, with the S&P 500 futures up by 1.43% to 1,901.50 and the Nasdaq futures up by 1.49% to 4,203.00 during the forex session. Many analysts were pointing to the weak Chinese GDP reading from earlier and speculation that the Chinese government may be introducing more stimulus measures.

Commodities rally – Commodities were broadly in the green during the forex session. Oil, in particular, was rallying hard, with U.S. crude oil up by 1.46% to $30.87 per barrel and Brent crude oil up by 3.50% to $29.63 per barrel during the session on strong Chinese demand. Gold was down by 0.54% to $1,084.80 per troy ounce, however, probably because of the risk-on sentiment.

Major Currency Movers:

GBP – The pound had a solid run across the board due to the optimistic inflation readings, but immediately began to retreat when BOE Carney said that “now is not yet the time to raise interest rates,” probably because of a mass exodus of interest rate junkies who were still clinging to the hope that the BOE will be hiking rates within the first half of this year.

GBP/USD was down by 68 pips (-0.48%) to 1.4217 1.4339 as session high, GBP/JPY was down by 87 pips (-0.52%) to 167.56 169.09 as session high, GBP/NZD was down by 145 pips (-0.66%) to 2.1929 2.2179 as session high

AUD & NZD – The commodities rally and prevailing risk-on sentiment naturally meant more demand for the higher-yielding comdolls. The only thing worth noting is that the Loonie remained relatively weak despite the recovery in oil prices. Perhaps forex trades were wary of a possible rate cut for tomorrow’s BOC decision and rate statement

AUD/USD was up by 20 pips (+0.29%) to 0.6935, AUD/JPY was up by 24 pips (+0.30%) to 81.78, AUD/CAD was up by 44 pips (+0.45%) to 1.0040

NZD/USD was up by 15 pips (+0.23%) to 0.6485, NZD/CAD was up by 39 pips (+0.43%) to 0.9391, NZD/JPY was up by 20 pips (+0.25%) to 76.46

CHF – Most Swissy pairs were actually range-bound for most of the forex session, but got a massive volatility injection during and after BOE Carney’s very dovish speech. This was most likely due to capital flows from the pound to the safe-haven Swissy.

USD/CHF was down by 30 pips (-0.30%) to 1.0041, CAD/CHF was down by 32 pips (-0.46%) to 0.6934, GBP/CHF was down by 111 pips (-0.76%) to 1.4277

Watch Out For:

  • 1:30 pm GMT: Canadian foreign securities purchases (CAD 12.1B expected, CAD 22.1B previous)
  • 3:00 pm GMT: U.S. NAHB builders survey (61 expected, 61 previous)
  • 9:45 pm GMT: New Zealand’s CPI q/q (-0.2% expected, 0.3% previous)
  • 11:30 pm GMT: Westpac’s Australian Consumer Confidence (-0.8% previous)
  • Dairy auction currently underway; auction usually ends at around 2:00 pm GMT

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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