London Session Forex Recap – Feb. 3, 2016

  • Spanish final services PMI: 54.6 as expected vs. 55.1 previous
  • Italian final services PMI: 53.6 vs. 54.2 expected, 55.3 previous
  • French final services PMI: 50.3 vs. unrevised at 50.6 expected
  • German final services PMI: 55.0 vs. unrevised at 55.4 expected
  • Euro Zone services PMI: unrevised at 53.6 as expected
  • U.K. services PMI: 55.6 vs. 55.4 expected, 55.5 previous
  • Euro Zone retail trade m/m: 0.3% as expected vs. -0.3% previous
  • Euro Zone retail trade y/y: 1.4% vs. 1.5% expected, 1.6% previous

Risk appetite was making a comeback during today’s morning London forex session, so the higher-yielding comdolls (CAD, AUD, NZD) were giving the safe-haven currencies (USD, JPY, CHF) their comeuppance. However, demand for the pound trumped them all.

Major Events:

U.K. services improves slightly – Markit/CIPS released their U.K. services PMI report today and it was rather pleasant (for pound bulls) since the reading ticked higher to 55.6 from 55.5 when it was expected to tick lower to 55.4. The report also noted, among other things, that “new business rose at the sharpest rate since last July” while employment levels rose “at the fastest pace since last October.” Output growth was weaker, though.

Nevertheless, commentary from Markit Chief Economist Chris Williamson was pretty upbeat, stating that “The three PMI surveys for January collectively point to a slight upturn in the rate of economic growth, consistent with GDP rising at a quarterly rate of 0.6% in the first quarter, up from 0.5% in the fourth quarter.”

However, he also warned that “Despite the uptick in growth, the increased uncertainty about the outlook and persistent lack of inflationary pressures means the majority of policymakers will no doubt be more worried about avoiding another downturn than whether the economy needs higher interest rates.”

On the third day oil rises again – After getting dumped hard during the past couple of days, oil prices were finally on the rise again during today’s morning London forex session, with U.S crude oil up by 1.69% to $30.38 per barrel and Brent crude oil up by 1.62% to $33.24 per barrel. The sudden demand for oil was being fueled (hah!) by reports that Russia is more open to meeting with OPEC members to curb oil production in order to boost prices. Incidentally, climbing oil prices also sparked a broad-based rally for other commodities.

Risk appetite making a comeback? – European equities were wallowing deep in the red at the start of the morning London session, but came off their lows as the trading session progressed, with the pan-European FTSEurofirst 300 was still up by 0.02% to 1,317.53 after sinking 1.13% to 1,316.84 earlier while the DAX was still down by 0.89% to 9,496.00 after dropping 1.57% to 9430.60 earlier. The returning risk appetite came in the wake of rising oil prices, although rallies on individual companies were a factor as well. Returning appetite for risk was also able to push U.S. equity futures into positive territory, with the S&P 500 futures up by 0.32% to 1,903.50 and Nasdaq futures up by 0.15% to 4,198.38 during the forex session.

Juncker approves – European Commission President Jean-Claude Juncker was in focus today, and he said that “The settlement that has been proposed is fair for the UK and fair for the other 27 members” and that “It is also fair for the European Parliament.” This settlement that he’s referring to is the draft of the agreement between the U.K. and E.U. that I touched upon during yesterday’s morning London forex recap, which is gonna help alleviate jitters over a possible Brexit.

Major Currency Movers:

CAD – Forex traders were really loading up on the higher-yielding Loonie during the forex session, thanks to climbing oil prices and returning risk appetite. It even trumped the other high-yielding comdolls (NZD and AUD), which were attracting some buyers as well.

USD/CAD was down by 95 pips (-0.68%) to 1.3944, AUD/CAD was down by 51 pips (-0.52%) to 0.9850, NZD/CAD was down by 35 pips (-0.39%) to 0.9205

USD – The returning risk-on sentiment naturally meant that safe-haven currencies were out of luck, at least during today’s morning London forex session. But interestingly enough, the weakest currency of them all was the Greenback. There were no catalysts that can account for the Greenback’s weakness, but we have upcoming data for the U.S., so it’s possible that forex traders were just opening preemptive positions or liquidating their open positions.

USD/JPY was down by 55 pips (-0.46%) to 119.40, USD/CHF was down by 31 pips (-0.31%) to 1.0159, EUR/USD was up by 27 pips (+0.25%) to 1.0934

GBP – The pound just steamrolled right through all of its forex rivals, with the mighty Loonie being the only currency that managed to put up a fight. The pound was pretty steady at the start of the morning London forex session, but began surging higher across the board when the slightly better-than-expected reading for U.K. services PMI came out. After that, it just kept on climbing higher, with Juncker’s words probably sustaining the rally due to fading jitters over a potential Brexit.

GBP/USD was up by 106 pips (+0.74%) to 1.4506, GBP/JPY was up by 45 pips (+0.26%) to 173.22, GBP/CHF was up by 65 pips (+0.44%) to 1.4740

Watch Out For:

  • 1:15 pm GMT: ADP U.S. employment survey (193K expected, 257K previous)
  • 2:45 pm GMT: Markit’s final services PMI (no revision from 53.7 expected)
  • 3:00 pm GMT: U.S. ISM non-manufacturing PMI (55.1 expected, 55.8 previous)
  • 3:30 pm GMT: U.S. crude oil inventories (3.7M expected, 8.4M previous)
  • 10:30 pm GMT: RBNZ Assistant Governor John McDermott is expected to talk about monetary policy

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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