London Session Forex Recap – Feb. 12, 2016

  • German preliminary Q4 GDP q/q: 0.3% as expected, same as previous
  • German preliminary Q4 GDP y/y: 1.3% vs. 1.4% expected, 1.7% previous
  • German WPI m/m: -0.4% vs. 0.2% expected, -0.8% previous
  • U.K. construction output m/m: 1.5% vs 2.1% expected, -1.1% previous
  • Euro Zone industrial production m/m: -1.0% vs. 0.3% expected, -0.5% previous
  • Euro Zone industrial production y/y: -1.3% vs. 0.7% expected, 1.4% previous
  • Euro Zone preliminary Q4 GDP q/q: 0.3% as expected, same as previous
  • Euro Zone preliminary Q4 GDP y/y: 1.5% as expected vs. 1.6% previous

Price action was a bit more subdued than usual during today’s morning London forex session, but there was more than enough volatility and directional movement to keep the session interesting.

Major Events:

Euro Zone preliminary Q4 2015 GDP Euro zone Q4 2015 GDP grew by 0.3% quarter-on-quarter and 1.5% year-on-year, which are both within expectations. However, the year-on-year reading was slightly slower than the previous quarter’s 1.6% expansion. Unfortunately, there was no breakdown of the GDP components, but we did get a separate report for…

Euro Zone industrial production – Industrial output in the euro zone for the December period was a disappointment since the month-on-month reading printed a 1.0% contraction instead of advancing by 0.3% while the year-on-year reading was down by 1.3% instead of increasing by 0.7% as expected. The year-on-year contraction is rather significant since this is the first time in about a year that industrial production was pushed into the red.

According to the details of the report, the unexpected month-on-month decline was due mainly to a 2.4% fall in energy production, and a 1.9% contraction in capital goods production. The two aforementioned components were also the main drags to the year-on-year reading, with energy production down by 7.3% and capital goods production down by 2.6%.

Commodities rally – Commodities were rallying hard during the forex session, with oil leading the charge. The broad-based rally was likely due to profit-taking from the shorts after an entire week of declines. In the case of oil, however, market analysts also pointed to renewed speculation on a potential deal to cut back on oil production after United Arab Emirates Energy Minister Suhail bin Mohammed al-Mazrouei discussed the possibility of such a deal earlier. U.S. crude oil was up by 4.41% to $27.37 per barrel while Brent crude oil was up by 4.29% to $31.35 per barrel during the session.

Returning risk appetite or profit-taking? – Commodities were not the only ones in rally mode since European equities were raking-in gains as well, the pan-European FTSEurofirst 300 up by 2.07% to 1,220.50 and the DAX up by 1.75% to 8,906.00. U.S. equity futures were glowing green as well, with the S&P 500 futures up by 1.10% to 1,844.50 and the Nasdaq futures 1.04% to 4,002.50 during the trading session.

Some market analysts attributed the risk-taking to good company earnings reports, particularly for banks. Other analysts, meanwhile, were pointing to the commodities rally that I mentioned earlier. Profit-taking after global equities slumped hard during the week isn’t off the table, though, but it’s possible that risk appetite was genuinely making a comeback since gold was down by 0.79% to $1,237.90 per troy ounce during the session.

Major Currency Movers:

GBP – The returning risk appetite allowed the higher-yielding pound to easily trump ALL its forex rivals, including the higher-yielding comdolls.

GBP/USD was up by 18 pips (+0.13%) to 1.4513, GBP/NZD was up by 47 pips (+0.22%) to 2.1817, GBP/JPY was up by 101 pips (+0.62%) to 163.58

JPY – As the go-to currency during times of risk aversion, the Japanese yen had a reversal of fortune because of the risk-on sentiment, and ended up being the weakest currency of them all.

USD/JPY was up by 53 pips (+0.48%) to 112.70, EUR/JPY was up by 38 pips (+0.30%) to 127.01, CHF/JPY was up by 63 pips (+0.55%) to 115.58

EUR – The lower-yielding euro was also feeling the burn from the risk-on environment, as market players switched to riskier assets such as European equities. Although it’s also possible that forex traders were pricing in the rather disappointing industrial production readings.

EUR/USD was down by 11 pips (-0.10%) to 1.1267, EUR/GBP was down by 23 pips (-0.30%) to 0.7762, EUR/CHF was down by 27 pips (-0.25%) to 1.0987

Watch Out For:

  • 1:30 pm GMT: U.S. import price index (-1.5% expected, -1.2% previous)
  • 1:30 pm GMT: U.S. headline (0.1% expected, 0.1% previous) and core (0.1% expected, -0.1% previous) readings for U.S. retail sales; check out Forex Gump’s Forex Trading Guide here
  • 3:00 pm GMT: The preliminary result for the University of Michigan’s consumer sentiment survey (92.6 expected, 92.0 previous)
  • 3:00 pm GMT: U.S. business inventories (0.1% expected, -0.2% previous)
  • 3:00 pm GMT: New York Fed President William Dudley has a speech

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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