London Session Forex Recap – Jan. 26, 2016

  • Swiss trade balance: 2.54B CHF vs. 2.90B CHF expected, 3.16B CHF previous
  • Iraqi oil minister: Iraq willing to cut back production of other OPEC members do so
  • BOE Carney’s testimony: reiterates his view that “conditions are not yet in place” for a rate hike

Oil staged a rally during today’s morning London forex session, causing risk sentiment to improve. And the returning risk appetite meant that we had another lopsided battle between the safe-havens and the higher-yielders.

Major Events:

Oil recovers – Oil climbed higher during today’s morning London session after diving lower yesterday. U.S. crude oil clawed its way 1.14% higher to $30.67 per barrel after dropping to a low of $29.25 per barrel during the Asian session. Brent crude, meanwhile, was up by 1.04% to $31.61 per barrel after reaching a low of $30.13 per barrel earlier.

The rally was apparently triggered when Adel Abdul Mahdi, Iraq’s oil minister, commented about a possible deal for cutting back on oil production between OPEC members and non-OPEC. Iraq’s oil minister also affirmed Iraq’s willingness to cut oil production if the other OPEC members do so, which is good news since yesterday’s oil slump was likely caused by Iraq’s announcement of record-high oil production.

Risk appetite making a comeback – European equities started the morning London forex session on a weak footing after China’s equity market plunged to 14-month lows earlier. But risk sentiment did begin to noticeably improve when oil began to rally during the trading session

The pan-European FTSEurofirst 300 was down by 0.16% to 1,321.31 after dropping 2.01% to 1,296.80 earlier while the DAX was down by 0.12% to 9,724.50 after sliding 1.77% lower to 9,564.00 earlier. U.S. equity futures were also moderately in the green after opening the forex session in the red, with the S&P 500 futures up by 0.31% to 1,876.00 while Nasdaq futures was up by 0.22% to 4,196.00.

BOE Mark Carney’s testimonyBOE Guv’nah Mark Carney testified on the Financial Stability Report before the Treasury Select Committee today, and he reiterated his statement from his January 19 speech that “conditions are not yet in place” for hiking rates. He did, however, emphasize that his statement during the January 19 speech were his own views and that his views did not necessarily represent the other MPC members.

Major Currency Movers:

Comdolls – The returning risk-on sentiment naturally meant that the higher-yielding comdolls (CAD, AUD, NZD) were getting some much needed luvin’ from forex traders during the session. Quite understandably, the Loonie was the strongest among the three due to the oil rally.

AUD/USD was up by 42 pips (+0.61%) to 0.6978, AUD/NZD was up by 47 pips (+0.44%) to 1.0806, AUD/JPY was up by 95 pips (+1.17%) to 82.64

NZD/USD was up by 13 pips (+0.20%) to 0.6459, NZD/JPY was up by 58 pips (+0.77%) to 76.50, NZD/CHF was up by 40 pips (+0.62%) to 0.6565

USD/CAD was down by 108 pips (-0.76%) to 1.4196, NZD/CAD was down by 51 pips (-0.56%) to 0.9170, EUR/CAD was down by 172 pips (-1.11%) to 1.5371

JPY – The returning risk-on sentiment also naturally meant that the safe-haven currencies (USD, CHF, JPY) were no longer in demand, so they experiencing some selling pressure from the capital outflows. The Japanese yen was particularly vulnerable, probably because there has been a large build-up of long positions on the Japanese yen, so there’s room for dumping the yen.

USD/JPY was up by 61 pips (+0.52%) to 118.38, CHF/JPY was up by 20 pips (+0.17%) to 116.54, EUR/JPY was up by 16 pips (+0.13%) to 128.13

GBP – The pound was strong for the most part, losing out only to the Aussie and the Loonie. Demand for the higher-yielding pound was likely being fueled by the returning risk appetite. Another possible catalyst is BOE Guv’nah Mark Carney’s testimony that his views during his January 19 speech did not necessarily represent the other MPC members. This may have convinced some interest rate junkies that rate hikes may not be off the cards just yet.

GBP/USD was up by 27 pips (+0.19%) to 1.4248, GBP/CHF was up by 88 pips (+0.61%) to 1.4481, GBP/JPY was up by 138 pips (+0.83%) to 168.83

Watch Out For:

  • 2:00 pm GMT: U.S. S&P Case-Shiller HPI (5.67% expected, 5.54% previous)
  • 2:00 pm GMT: U.S. FHFA HPI (0.5% expected, 0.5% previous)
  • 2:45 pm GMT: Markit’s U.S. flash services PMI (53.9 expected, 54.3 previous)
  • 3:00 pm GMT: U.S. CB consumer confidence (96.5 expected, 96.5 previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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