London Session Forex Recap – Feb. 2, 2016

  • Swiss retail sales y/y: -1.6% vs. -1.3% expected, -1.7% previous
  • German jobless rate: 6.2% vs. 6.3% expected, 6.3% previous
  • German jobless change: -20K vs. -8K expected, -16K previous
  • U.K. construction PMI: 55.0 vs. 57.6 expected, 57.8 previous
  • Euro Zone jobless rate: 10.4% vs. 10.5% expected, 10.5% previous
  • Euro Zone PPI m/m: -0.8% vs. -0.6% expected, -0.2% previous
  • Euro Zone PPI y/y: -3.0% vs. -2.8% expected, -3.2% previous
  • Dairy auction currently underway

Risk aversion was still the name of the game during today’s morning London forex session, and the euro was once again the king (or queen) of the lower-yielders. The pound’s roller coaster price action was noteworthy as well. together with the Loonie’s strength despite the risk-off environment.

Major Events:

U.K. construction PMI drops – After delivering a U.K. manufacturing PMI reading (that looked good on the surface) during yesterday’s morning London trading session, Markit/CIPS printed a lower-than-expected reading for the U.K. construction PMI. The reading is still above the 50.0 neutral mark at 55.0, but it’s the lowest reading since April 2015 and signals that expansion is slowing down. The PMI report also noted that “job creation eases to its slowest for almost two-and-a-half-years” while new order growth grew at a four-month low. Also, respondents were still upbeat, but business confidence deteriorated to December 2014 lows.

Oil sinks – Today was another down day for oil prices, with U.S. crude oil down by 3.72% to $30.69 per barrel and Brent crude oil down by 3.91% to $33.18 per barrel. Most analysts were pointing to oversupply jitters amidst fading hopes over a potential deal between OPEC members and non-OPEC members to alleviate the oil glut by cutting back on oil production. Reuters later quoted Russian Foreign Minister Sergei Lavrov as saying that Russia is willing to cooperate, but his words didn’t seem to have an effect on oil’s price action.

Gloomy sentiment persists – Risk aversion was still the name of the game during today’s morning London forex session, with the pan-European FTSEurofirst down by 1.58% to 1,323.47 and the DAX down by 1.05% to 9,655.00. Even U.S. equity futures were glowing red, with the S&P 500 futures down by 0.67% to 1,918.75 and the Nasdaq futures down by 0.69% to 4,263.38 during the session. The gloomy mood was attributed to dropping oil prices, which was already discussed above.

E.U. and U.K. draft deal – Media outlets have been reporting since the start of the trading session that a deal to prevent a U.K. exit from the E.U. was in the works, and a draft of that deal was released during the trading session, which you read here, if you need to sleep. Some of the salient points covered by the draft include giving Britain the option to not take part in deeper political integration at the expense of British sovereignty. The draft also addressed the issue of competitiveness by “regularly assess progress in simplifying legislation and reducing burden on business so that red tape is cut.”

Major Currency Movers:

EUR – The lower-yielding euro was enjoying another risk-off day that brought capital flows from riskier assets, namely European equities. The euro even easily gave the traditional safe-haven currencies (USD, JPY, CHF) a mighty good beating, although those currencies were getting some buyers during the session. The euro barely held onto its gains against the pound and the Loonie, though.

EUR/USD was up by 18 pips (+0.17%) to 1.0920, EUR/JPY was up by 29 pips (+0.23%) to 131.81, EUR/CHF was up by 31 pips (+0.28%) to 1.1147

CAD – The other higher-yielding comdolls (AUD and NZD) were getting burned by the risk-off sentiment that prevailed during the morning London session, but the Loonie was mysteriously gaining strength despite the drop in oil prices during the session.

USD/CAD was down by 22 pips (-0.15%) to 1.3989, AUD/CAD was down by 39 pips (-0.40%) to 0.9879, NZD/CAD was down by 51 pips (-0.57%) to 0.9080

GBP – Pound pairs started the trading session on a weak footing and that weakness intensified when the disappointing construction PMI reading came out. However, the drop was just a knee-jerk reaction since pound pairs rebounded pretty much across the board, but had some difficulty winning out against the Loonie, which was mysteriously strong during the session, as I already noted earlier. The rebound was possibly due to fading Brexit fears due to the draft I mentioned earlier.

GBP/USD was up by 13 pips (+0.09%) to 1.4410 with 1.4326 as session low, GBP/JPY was up by 31 pips (+0.18%) to 173.99 with 172.94 as session low, GBP/NZD was up by 111 pips (+0.51%) to 2.2194 with 2.2064 as session low

Watch Out For:

  • 3:00 pm GMT: U.S. IBD consumer optimism (47.7 expected, 47.3 previous)
  • 6:00 pm GMT: Kansas Fed President Esther George will talk about her outlook on the U.S. economy
  • 9:45 pm GMT: New Zealand jobless rate (6.1% expected, 6.0% previous)
  • 9:45 pm GMT: New Zealand employment growth (0.8% expected, -0.4% previous)
  • 10:30 pm GMT: AIG’s Australian services PMI (46.3 previous)
  • 11:45 pm GMT: RBNZ Guv’nah Graeme Wheeler will deliver a speech on New Zealand’s economic outlook
  • Dairy auction currently underway; auction usually ends at around 2:00 pm GMT

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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