London Session Forex Recap – Jan. 27, 2016

  • German GFK consumer sentiment: 9.4 vs. 9.3 expected, 9.4 previous
  • Swiss UBS consumption indicator: 1.62 vs. 1.55 previous
  • U.K. Nationwide HPI m/m: 0.3% vs. 0.6% expected, 0.8% previous
  • U.K. Nationwide HPI y/y: 4.4% vs. 4.6% expected, 4.5% previous
  • French INSEE consumer confidence: 97 vs. 96 expected, 96 previous
  • U.K. BBA mortgage approvals: 43.98K vs. 45.50K expected, 44.53K previous

Today’s morning London trading session was rather calm since forex traders were probably hunkering down for the upcoming FOMC statement. Pound pairs were relatively active, though, while the Loonie got some buyers near the end of the session.

Major Events:

Oil goes back down – The oil rally triggered during yesterday’s morning London forex session was short-lived since oil is back in the red again, with U.S. crude oil down by 3.61% to $30.34 per barrel and Brent crude oil down by 2.36% to $31.82 per barrel during the session. According to most analysts, the renewed slump was due to concerns over a build-up in U.S. oil inventories, jitters ahead of the FOMC statement, and disappointment over the 4.5% decrease in Chinese industrial profits. Incidentally, the decline in Chinese industrial profits is likely the main reason why commodities other than oil were broadly in the red today.

Going back to oil, oil benchmarks did later pare some of their losses near the end of the session when reports began to circulate that OPEC was considering Venezuela’s request for an emergency meeting. In addition, Iraq’s Finance Minister Hoshiyar Zebari was quoted as saying the following: “Not sure we will say yes to Venezuela because we need to produce more, because of the challenges we have, but if we believe there would be a consensus, a collective decision then we might go with it.” Zebari was also quoted as saying that there are “encouraging signs” the oil prices will stage a recovery come spring due to lower output from U.S. shale oil producers

Risk aversion returns – There was a noticeable lack of risk-taking during the forex session, with the pan-European FTSEurofirst 300 down by 0.97% to 1,322.96 and the DAX down by 0.74% to 9,745.30. Even U.S. equity futures were bleeding out, with the S&P 500 futures down by 0.66% to 1,883.50 and the Nasdaq futures down by 0.96% to 4,186.00 during the session. Most analysts blamed the returning risk-off sentiment to the drop in oil prices during the session and caution ahead of the FOMC statement. Although some analysts also pointed out that the poor earnings reports for individual companies was likely a factor as well.

Nationwide’s U.K. HPI – This economic report is mid-tier at best, but it was the only other catalyst that can account for the higher-yielding pound’s slide aside from the prevailing risk-off sentiment. Anyhow, Nationwide’s House Price Index (HPI) for January printed a 0.3% month-on-month increase, which translates to a 4.4% year-on-year increase. And while an increase is always good, both the monthly and annualized readings were unfortunately below both the market’s expectations and the previous readings.

Pre-FOMC skittishness – Volatility and directional movement normally dries up ahead of top-tier events like the upcoming FOMC statement. And today was certainly a very normal day since most currency pairs were milling about in tight ranges.

Major Currency Movers:

GBP – The pound started the forex session by spiking lower. As I mentioned earlier, the poor readings for Nationwide’s HPI was the only other catalyst at that time aside from the risk aversion that permeated the trading session. Anyhow, most pound pairs then began trading sideways after that, although GBP/CAD got kicked lower near the end.

GBP/USD was down by 32 pips (-0.23%) to 1.4308, GBP/NZD was down by 83 pips (-0.36%) to 2.2045, GBP/CAD was down by 101 pips (-0.50%) to 2.0156

CAD – Like most of the other currency pairs, Loonie pairs were actually range-bound for most of the forex session despite the slumping oil prices and risk-off sentiment that prevailed during the session. However, the Loonie got buyers across the board near the end of the forex session, most likely due to the report I mentioned above.

USD/CAD was down by 61 pips (-0.43%) to 1.4063, EUR/CAD was down by 45 pips (-0.29%) to 1.5309, AUD/CAD was down by 25 pips (-0.26%) to 0.9905

Watch Out For:

  • 3:00 pm GMT: U.S. new home sales (0.5% expected, 0.5% previous)
  • 3:30 pm GMT: U.S. crude oil inventories (3.8M expected, 4.0M previous)
  • 7:00 pm GMT: U.S. Fed funds rate decision and FOMC statement (unchanged at 0.50% expected)
  • 7:30 pm GMT: BOE Deputy Governor Nemat Shafik has a speech
  • 8:00 pm GMT: RBNZ OCR decision and statement (unchanged at 2.50% expected)
  • 9:45 pm GMT: New Zealand’s trade balance (-131M NZD expected, -778M NZD previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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