London Session Forex Recap – Jan. 20, 2016

  • German PPI m/m: -0.5% vs. -0.4% expected, -0.2% previous
  • German PPI y/y: -2.3% vs. -2.2% expected, -2.5% previous
  • U.K. claimant count change: -4.3K vs. 2.8K expected, -2.2K previous
  • U.K. jobless rate: 5.1% vs. 5.2% expected, 5.2% previous
  • U.K. average earnings: 2.0% vs. 2.1% expected, 2.4% previous
  • Swiss ZEW economic expectations: -3.0 vs. 16.6 previous
  • U.S. CPI coming up
  • BOC rate decision and press conference for later

Forex price action during today’s morning London trading session was pretty choppy. There was a lot of volatility, but there was little in terms of directional movement, with most currency pairs trading sideways.

Major Events:

Overall positive U.K. jobs report – The jobless rate for the three months to November came in at 5.1%, which is great since it beats the consensus that it would hold steady at 2.2%. The number of people claiming unemployment benefits also declined by 4.3K when it was expected to increase by 2.8K. The only disappointing thing about the jobs report is that wages only grew by 2.0% year-on-year (1.9% without bonuses), which is less than the expected 2.1% increase and the previous month’s 2.4% and a bad sign for inflation and consumer spending.

Oil dives deep – Oil prices dove to 2003 lows during the forex session on continuing concerns over the International Energy Agency’s (IEA) earlier warning that the oil market could “drown in oversupply” in 2016. U.S. crude oil was down by 2.49% to $28.84 per barrel while Brent crude oil was down 2.00% to $28.16 per barrel during the session. Despite the slide in oil prices, Loonie pairs refused to follow suit, opting to trade mostly sideways instead. Perhaps forex traders were sitting on their hands ahead of the BOC rate decision and press conference for later.

European equities routed – European equities were unable to hold onto yesterday’s gains as risk-aversion came back with a vengeance on the back of slumping oil prices. The pan-European FTSEurofirst 300 was crushed 3.03% lower to 1,271,17 while the DAX was stomped 3.18% lower to 9,393.80 during the forex session. U.S. equity futures were also feeling the burn, with the S&P 500 futures down by 1.70% to 1,841.12 and the Nasdaq futures down by 1.92% to 4,065.00 during the forex session.

BOJ likely to cut CPI forecasts – According to an exclusive report from Reuters, the BOJ “is likely to cut its core consumer inflation forecast for the coming fiscal year to possibly below 1 percent at a policy review next week,” citing three unnamed (what a surprise) sources. If y’all can still recall, the BOJ has refused to introduce more easing measures despite repeated call for more, and BOJ officials reason that their defiance is based on the fact that the underlying trend in inflation is promising. If the BOJ will cut their core CPI inflation forecast, then that could mean that BOJ officials may soon be thinking about more easing moves.

Major Currency Movers:

EUR – The euro was pretty special since it was the only currency that showed clear directional movement. To be more specific, the euro slapped around the higher-yielders at the start of the forex session when it became clear that risk aversion was gonna be the name of the game. It then got clobbered by its forex rivals across the board. There were no clear catalysts for the sudden change in sentiment for the euro, however. Perhaps forex traders were opening preemptive positions ahead of tomorrow’s ECB rate decision and presser?

EUR/USD was down by 27 pips (-0.25%) to 1.0912, EUR/JPY was down by 41 pips (-0.33%) to 127.32, EUR/NZD was down by 55 pips (-0.31%) to 1.7148

GBP – Pound pairs were mostly weak at the start of the forex session due, perhaps, to the risk-off sentiment and continuing disappointment over BOE Carney’s speech yesterday. Pound pairs then got infused with a lot of buyers when the mostly positive jobs report came out. After that, forex traders seem to have lost interest on the pound since pound pairs began trading sideways for the rest of the morning London session.

GBP/USD was essentially unchanged but dove 30 pips (-0.21%) lower to 1.4132 before climbing back to a session high of 1.4190 and then ranging after that, GBP/JPY dove 140 pips lower to 163.98 then climbed back to a session high of 165.62 then ranged and closed 15 pips lower (-0.09%) at 165.23, GBP/CHF fell 57 pips to 1.4131 then clawed its way back and then some to a session high of 1.4221 before ending the morning London session 6 pips higher (+0.05%) at 1.4188

JPY – The prevailing risk-off sentiment allowed the yen to give the higher-yielding comdolls a major beatdown at the start of the forex session, but then turned tail and ran in the opposite direction like a whipped dog when around the time the reuters report I mentioned earlier began to circulate. Whether or not that was the catalyst for the yen’s sudden turnaround is not yet clear, though.

USD/JPY was down by 10 pips (-0.09%) to 116.66 with 115.97 as session low, CAD/JPY was down by 7 pips (-0.09%) to 79.67 with 78.94 as session low, AUD/JPY was down by 17 pips (-0.21%) to 79.95 with 79.21 as session low

Watch Out For:

  • 1:30 pm GMT: Headline (0.0% expected, 0.0% previous) and core (0.2% expected, 0.2% previous) readings for U.S. CPI
  • 1:30 pm GMT: Canadian manufacturing sales (0.5% expected, -1.1% previous)
  • 1:30 pm GMT: U.S. building permits (1.2 million expected, 1.3 million previous)
  • 1:30 pm GMT: U.S. housing starts (1.2 million expected, 1.2 million previous)
  • 3:00 pm GMT: BOC overnight rate decision (rate cut from 0.50% to 0.25% expected); read Forex Gump’s write-up for this event here
  • 3:30 pm GMT: U.S. crude oil inventories (3.3 million expected, 0.2 million previous)
  • 4:15 pm GMT: BOC press conference
  • 9:30 pm GMT: New Zealand’s Business NZ manufacturing index (54.7 previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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