London Session Forex Recap – Feb. 1 2016

  • Swiss manufacturing PMI: 50.0 vs. 50.9 expected, 50.4 previous
  • French final manufacturing PMI: unrevised at 50.0 as expected
  • German final manufacturing PMI: 52.3 vs. no revision at 52.1 expected
  • Euro Zone final manufacturing PMI: unrevised at 52.3 as expected
  • U.K. manufacturing PMI: 52.9 vs. 51.8 expected, 52.1 previous
  • BOE secured lending: £3.2B vs. £3.6B expected, £3.8B previous
  • BOE net consumer credit: £1.2B vs. £1.3B expected, £1.5B previous
  • BOE mortgage approvals: 70.8K vs. 69.6K expected, 70.4K previous
  • U.S. ISM manufacturing PMI coming up

Risk appetite was nowhere in sight during Monday’s morning London forex session, but the safe-haven yen wasn’t getting a lot of buyers. Can you guess which currency was attracting a lot of buyers?

Major Events:

U.K. manufacturing PMI climbs higher – The U.K. manufacturing PMI reading from Markit/CIPS came in better-than-expected, climbing to a three-month high of 52.9, due mainly to another spurt of acceleration in output

However, the report noted that exports declined, but this was easily offset by strong demand from the domestic market. Also, the report highlighted that the decline in exports was due to “stronger competition and tough market conditions.”Some respondents even pointed out that “despite recent easing, the sterling-euro exchange rate remained an issue impacting on trade flows with the eurozone.” In short, they’re complaining that the pound is still too strong.

On an even more downbeat note, the report noted that “manufacturing employment was reduced for the fourth time in the past six months.” Furthermore, “Average input prices fell at the fastest rate for four months and to one of the greatest extents during the 24-year survey history.” And that is bad news for forex traders, especially interest rate junkies, since it implies that the horrid inflation levels will persist for longer, which means that the BOE may not be looking to hike rates any time soon.

Gloomy Monday – European market players were in a downbeat mood, with the pan-European FTSEurofirst 300 down by 0.72% to 1,338.33 and the DAX down by 0.99% to 9,702.00. U.S. equity futures also erased their gains from the earlier Asian session, with the S&P 500 futures down by 0.57% to 1,919.00 and the Nasdaq futures down by 0.49% to 4,242.00. Market analysts were pointing their fingers to the poor Chinese PMI readings from earlier and lower oil prices. Interestingly enough, forex traders were in no rush to load up on the safe-haven Japanese yen, probably because of the BOJ’s recent policy decision.

Commodities crumble – Commodities were broadly in the red again, with oil leading the way. U.S.crude oil was down 2.45% to $32.80 per barrel while Brent crude oil was down 1.40% to $35.48 per barrel during the forex session. Gold was up 0.55% to $1,122.50 per troy ounce during the session, however, probably because of the rampant risk aversion. Anyhow, the broad-based decline was likely due to continuing disappointment over the poor Chinese PMI readings from the earlier Asian session. And in the case of oil, many market analysts also pointed to vanishing optimism over a potential deal between OPEC and non-OPEC members to curb excessive oil production.

ECB Nowotny’s statements – ECB Governing Council Member Ewald Nowotny was in a talking mood today, and he berated market players, telling them that “they clearly expected too much.” When asked about further rate cuts other than to the deposit rate, he said that it was still “much too early” and that “There is now work going on in a number of working groups and commissions and it would be premature to give details.” Nowotny also warned that: “There might be negative inflation rate in some months – I do not foresee this for the whole year and especially not for the second half.” However, he also stressed that core inflation “has proven to be relatively stable.”

Major Currency Movers:

EUR – The euro was giving all its forex rivals a mighty good beating during the trading session. This was most likely due to the prevailing risk-off sentiment’s squeeze on European equities, which generated capital flows toward the lower-yielding euro. It’s also possible that forex traders interpreted ECB Nowotny’s statements as a sign that the ECB may not be easing further since the euro kept on climbing unopposed (and even accelerated on some pairs).

EUR/USD was up by 32 pips (+0.30%) to 1.0880, EUR/JPY was up by 46 pips (+0.35%) to 131.92, EUR/CHF was up by 18 pips (+0.16%) to 1.1101

CHF – Aside from the euro, the safe-haven Swissy was enjoying the prevailing risk aversion as well, and even at the expense of the other safe-haven currencies (USD, JPY). However, it still lost out rather badly to the euro, as noted above.

USD/CHF was down by 16 pips (-0.15%) to 1.0203, CAD/CHF was down by 17 pips (-0.24%) to 0.7268, CHF/JPY was up by 25 pips (+0.21%) to 118.84

GBP – The pound’s price action during the session was actually rather choppy. It climbed higher at first, likely as a knee-jerk reaction to the better-than-expected manufacturing PMI reading. But later dropped lower, probably because forex traders took a look at the rather dreary details of the report. After that, the pound’s forex price action diverged since it won out against the comdolls, as well as the yen and the Greenback, but got kicked lower by the Swissy and the euro.

GBP/USD was up by 31 pips (+0.22%) to 1.4297 with 1.4243 as session low, GBP/NZD was up by 43 pips (+0.20%) to 2.2103 with 2.2014 as session low, GBP/JPY was up by 46 pips (+0.27%) to 173.39 with 172.58 as session low

Watch Out For:

  • 1:30 pm GMT: U.S. personal spending (0.1% expected, 0.3% previous)
  • 1:30 pm GMT: U.S. core PCE price index (0.1% expected, 0.1% previous)
  • 2:30 pm GMT: Markit/RBC Canadian manufacturing PMI (47.5 previous)
  • 2:45 pm GMT: Markit’s final U.S. manufacturing PMI (no revision from 52.7 expected)
  • 3:00 pm GMT: U.S. construction spending (0.6% expected, -0.4% previous)
  • 3:00 pm GMT: U.S. ISM manufacturing PMI (48.5 expected, 48.2 previous)
  • 4:00 pm GMT: ECB President Mario Draghi will testify before the European Parliament
  • 6:00 pm GMT: Federal Reserve Governor Stanley Fischer is scheduled to speak

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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