London Session Forex Recap – Feb. 29, 2016

  • German retail sales m/m: 0.7% vs. 0.3% expected, 0.6% previous
  • German retail sales y/y: -0.8% vs. 0.0% expected, 2.5% previous
  • German import price index m/m: -1.5% vs. 1.0% expected, -1.2% previous
  • German import price index y/y: -3.8% vs. -3.4% expected, -3.1% previous
  • Swiss KOF leading indicator: 102.4 vs. 100.3 expected, 100.4 previous
  • U.K. net consumer credit: £1.6B vs. £1.4B expected, £1.1B previous
  • U.K. mortgage approvals: 74.6K vs. 74.1K expected, 71.3K previous
  • Euro Zone flash HICP y/y: -0.2% vs. 0.0% expected, 0.3% previous
  • Euro Zone flash core HICP y/y: 0.7% vs. 0.9% expected, 1.0% previous
  • PBoC cuts RRR by 50 bps

The euro was on the hot seat during Monday’s morning London forex session, thanks to very disappointing inflation readings for the euro zone.

Major Events:

Very poor euro zone inflation report – Forex Gump warned in his Forex Snapshot of the Euro Zone that “PMI reports and the available preliminary inflation reports are implying heavily that the uptick in January is gonna get torpedoed come February.” Well, that’s exactly what happened today since the flash HICP for the euro zone printed a -0.2% when it was only expected to flatten out (+0.3% previous). Even the core reading took a big hit, dropping to 0.7% (0.9% expected, 1.0% previous).

Looking at the details of the report, pretty much all the major components increased at a slower rate, with the price of services up only by 1.0% (1.2% previous), the cost of “food, alcohol & tobacco” only up by 0.7% (1.0% previous), and non-energy industrial goods only increasing by 0.3% (0.7% previous). No wonder even the core reading deteriorated. Energy was also even more of a drag since it was down by 8.0%, which is much bigger than the -5.4% printed previously.

PBoC cuts RRR by 50 bps – The People’s Bank of China (PBoC) announced earlier during the morning London session that it was cutting down the reserve requirement ratio (RRR) for big lenders by 50 basis points to 17% effective on March 1.

According to the Google-translated official press release from the PBoC, the cut was “in order to maintain adequate liquidity and reasonable financial system, guide steady moderate growth of money and credit, the supply-side structural reforms to create appropriate monetary and financial environment.”

Skittish morning London session – The risk aversion from the earlier Asian session persisted into today’s morning London session, with the pan-European FTSEurofirst 300 down by 0.52% to 1,298.18 -6.82 and the DAX down by 1.04% to 9,414.00. Gold, the traditional safe-haven, attracted enough buyers to push it 1.01% higher to $1,232.70. As for U.S. equity futures, they were in negative territory, with the S&P 500 futures down by 0.22% to 1,938.50 and Nasdaq futures down by 0.42% to 4,212.25 during the morning London session. Market analysts pretty much pointed to disappointment over the G20 meeting as the main reason for the lack of risk-taking.

Major Currency Movers:

EUR – European traders must have read Forex Gump’s write-up that I mentioned earlier since euro pairs slumped across the board when the morning London session opened, shrugging off the better-than-expected reading for German retail sales and the prevalence of risk aversion. Euro pairs then pushed even lower when the actual inflation readings proved to be a disappointment, probably because forex traders were pricing in the higher probability of more easing when the March 10 ECB monetary policy decision finally rolls around.

EUR/USD was down by 67 pips (-0.61%) to 1.0889, EUR/JPY was down by 64 pips (-0.52%) to 123.15, EUR/AUD was down by 118 pips (-0.77%) to 1.5241

CHF – Despite being a safe-haven currency, the Swissy was the second weakest currency during the morning London session, losing badly to all its forex rivals while barely edging out a win against the vulnerable euro. There weren’t any disappointing catalyst during the morning London session, but it’s possible that European market players were factoring in SNB Head Thomas Jordan’s statement during the weekend that the SNB still has some policy tools up its sleeve, including the possibility of reducing the reserve amounts that are exempted from negative deposit rates.

USD/CHF was up by 61 pips (+0.62%) to 1.0022, CAD/CHF was up by 31 pips (+0.42%) to 0.7390, AUD/CHF was up by 56 pips (+0.80%) to 0.7161

AUD – The prevailing risk-off sentiment was unkind to the higher-yielding comdolls, but the Aussie was clearly trying to fight the powah since Aussie pairs were broadly higher (during the morning London session at least). Aussie pairs (and Kiwi pairs as well) also spiked higher across the board when the PBoC announced the RRR cut, but the spikes were very quickly faded, probably because of the risk-off sentiment.

AUD/USD was up by 12 pips (+0.18%) to 0.7144 with 0.7168 as session high, AUD/CAD was up by 35 pips (+0.37%) to 0.9685 with 0.9722 as session high, AUD/JPY was up by 21 pips (+0.27%) to 80.79 with 81.11 as session high

Watch Out For:

  • 1:30 pm GMT: Canadian current account (-15.55B CAD expected, -16.21B CAD previous)
  • 1:30 pm GMT: Canadian IPPI (0.0% expected, -0.2% previous)
  • 1:30 pm GMT: Canadian RMPI (-3.3% expected, -5.0% previous)
  • 2:45 pm GMT: Chicago PMI (52.5 expected, 55.6 previous)
  • 3:00 pm GMT: U.S. pending home sales (0.5% vs. 0.1% previous)
  • 9:45 pm GMT: New Zealand’s overseas trade index (-3.7% previous)
  • 10:30 pm GMT: AIG’s Australian manufacturing index (51.5 previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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