London Session Forex Recap – Jan. 28 2016

  • German import prices m/m: -1.2% vs. -1.1% expected, -0.2% previous
  • German import prices y/y: -3.1% vs. -3.0% expected, -3.5% previous
  • Spanish jobless rate: 20.9% vs. 21.1% expected, 21.2% previous
  • U.K. preliminary Q4 2015 GDP q/q: 0.5% as expected vs. 0.4% previous
  • U.K. preliminary Q4 2015 GDP y/y: 1.9% as expected vs. 2.1% previous
  • Euro Zone consumer sentiment: unchanged at -6.3 as expected
  • Euro Zone business climate index: 0.29 vs. 0.40 expected, 0.39 previous
  • Euro Zone economic sentiment: 105.0 vs. 106.4 expected, 106.7 previous
  • Euro Zone industrial sentiment: -3.2 vs. -2.5 expected, -2.0 previous

Risk aversion was the name of the game during today’s morning London forex session, but it wasn’t the Japanese yen that was getting a lot of buyers.

Major Events:

Poor U.K. Q4 2015 GDP – The United Kingdom’s Q4 2015 GDP readings were rather disappointing. The quarter-on-quarter reading printed a 0.5% expansion as expected, but the previous reading was downgraded from 0.5% to 0.4%. The year-on-year reading, meanwhile, printed a growth rate of 1.9%, which is still slower than the previous reading, even though the previous reading was downgraded from 2.3% to 2.1%. Looking at the details of the GDP report, the 0.7% growth in services was the main driver, adding 0.52% to the quarterly reading. Agricultural output also increased by 0.6%, but it had an insignificant contribution to GDP growth. The drags, meanwhile, came from production (-0.2%) and construction (-0.1%) output, which had a negative contribution of -0.03% and -0.01% respectively.

Oil grinds even higher – Oil was slowly clawing its way higher during the morning London forex session, with U.S. crude oil up by 0.14% to $32.34 per barrel and Brent crude oil up by 0.69% to $34.16 per barrel. The demand for oil during the session was apparently being fueled (Hah!) by reports that Russian officials have agreed to sit down with OPEC members to hammer out a deal to limit oil production in order to alleviate the oil glut. Another possible factor pumping up (Hah!) demand for oil was Iranian President Hassan Rouhani’s upbeat comment that low oil prices will not last in the long term because “The pressure on oil-producing nations means balance will be restored in the short term.”

Risk aversion domination – Despite climbing oil prices during the forex session, risk aversion was still the name of the game in other markets. Gold, which is a go-to asset during times of uncertainty, was up by 0.32% to $1,119.30 per troy ounce. Meanwhile, other commodities were broadly in the red. As for European equities, tha pan-European FTSEurofirst 300 was down by 1.28% to 1,323.62 while the DAX was down by 1.52% to 9,738.00 during the forex session. Most analysts were pointing to lingering concerns over the Fed’s tightening cycle after the Fed’s somewhat dovish FOMC statement yesterday.

Akira Amari resigns – Japanese Economy Minister Akira Amari voluntarily resigned earlier today after being slammed with allegations of taking bribes. His resignation made some market players worry over the implementation of the so-called Abenomics and Japan’s overall recovery, but Prime Minister Shinzo Abe quickly  implemented a damage control scheme by appointing Nobuteru Ishihara as the new Economy Minister.

Major Currency Movers:

CHF – Today’s morning London forex session was a risk-off session, so the safe-havens were naturally in demand. Strangely enough, forex traders were flocking to the Swissy rather than the Japanese yen. Thus may have been due to the disappointment over Akira Amari’s resignation, as I noted above. But it may also be because forex traders are just avoiding the yen ahead of the BOJ statement tomorrow.

USD/CHF was down by 31 pips (-0.31%) to 1.0132, AUD/CHF was down by 20 pips (-0.27%) to 0.7165, CAD/CHF was down by 29 pips (-0.41%) to 0.7194

EUR – The risk-off environment was putting a squeeze on European equities, which probably generated capital flows towards the low-yielding euro since the euro was pretty strong during the session.

EUR/USD was up by 30 pips (+0.28%) to 1.0906, EUR/JPY was up by 46 pips (+0.36%) to 129.66, EUR/AUD was up by 44 pips (+0.29%) to 1.5429

GBP – The pound reacted to the disappointing GDP reading by climbing higher. Wait, what? Yep, the pound was broadly in the green against most of its forex rivals during the session. The pound was getting some sellers during the earlier sessions, so it’s possible that those who opened preemptive positions were covering on their shorts.

GBP/USD was up by 47 pips (+0.33%) to 1.4306, GBP/CAD was up by 82 pips (+0.41%) to 2.0145, GBP/NZD was up by 57 pips (+0.26%) to 2.2137

CAD – The higher oil prices didn’t seem to cushion the higher-yielding Loonie from the prevailing risk-off sentiment since Loonie pairs were sounding the retreat.

USD/CAD was down by 20 pips (-0.15%) to 1.4091, EUR/CAD was down by 59 pips (-0.41%) to 1.5365, AUD/CAD was down by 16 pips (-0.16%) to 0.9960

Watch Out For:

  • 1:30 pm GMT: Headline (-0.7% expected, 0.0% previous) and core (-0.1% expected, 0.0% previous) readings for U.S. durable goods orders
  • 1:30 pm GMT: U.S. initial jobless claims (281K expected, 293K previous)
  • 3:00 pm GMT: U.S. pending home sales (0.9% expected, -0.9% previous)
  • 9:45 pm GMT: New Zealand’s building permits (1.8% previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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