London Session Forex Recap – Mar. 17, 2016

  • Swiss PPI m/m: -0.6% vs. 0.1% expected, -0.4% previous
  • Swiss PPI y/y: -4.6% vs. -3.9% mexpected, -5.3% previous
  • SNB Libor rate: unchanged at -0.75% as expected
  • SNB sight deposits rate: unchanged at -0.75% as expected
  • Euro Zone trade balance: €21.2B vs. €19.5B expected, €22.5B previous
  • Euro Zone final HICP y/y: no revision from -0.2% as expected
  • Euro Zone final core HICP y/y: revised higher to 0.8% vs. no revision at 0.7% expected
  • MPC meeting minutes: 9-0 vote to hold main rate 0.50% as expected
  • MPC meeting minutes: 9-0 vote to maintain asset purchases at £375B as expected

The FOMC hangover persisted into today’s morning London forex session, with the euro, the Swissy, and possibly the pound being the main beneficiaries. Risk aversion was also apparently in play since there was a clear divide between the higher-yielding comdolls and the lower-yielders (with the exception of the Greenback).

Major Events:

Commodities charge higher – The commodities market was a sea of green during the morning London session, with gold up by 3.32% to $1,270.60 per troy ounce and copper up by 2.64% to $2.293 per pound. Oil benchmarks were also glowing green, with U.S. crude oil up by 1.53% to $39.05 and Brent crude oil up by 1.29% to $40.85 per barrel during the morning London session.

The broad-based commodities rally was likely due to the weakened Greenback in the aftermath of the most recent FOMC policy decision and statement, which attracted bargain hunters. For the newbies out there, globally-traded commodities are priced in U.S. dollars, so a weaker Greenback makes ’em relatively cheap to buy.

The commodities didn’t really pump up demand for the comdolls, however, since they were losing out to most of the safe-havens, the euro, and the pound.

SNB monetary policy decision – The Swiss National Bank (SNB) announced earlier during the session that it will maintain its current monetary policy, so the target range for the Libor rate is still between -1.25% and -0.25%, with the median target rate at -0.75%. The interest rate on sight deposits is also maintained at -0.75%.

The SNB downgraded its inflation forecasts from -0.5% to -0.8% for 2016, citing the recent slump in oil prices and low global inflation levels. The SNB also downgraded its projections for Switzerland’s GDP growth from 1.5% to around 1.25%, due to a “more modest pace of global economic growth.”

Oh, the SNB also didn’t skip a beat and repeated its mantra that the Swissy is “still significantly overvalued” and that “the SNB will remain active in the foreign exchange market, in order to influence exchange rate developments where necessary.”

Equities bleed out – European equity indices steadily slid lower throughout the morning London session, with the pan-European FTSEurofirst 300 down by 1.24% to 1,325.22 and the DAX down by 1.78% to 9,805.70.

Market analysts blamed the risk aversion to disappointing reports for individual companies and the stronger euro (relative to the U.S. dollar) since a stronger euro means that European exports will be less competitive abroad. U.S. equity futures also got infected by the risk-off virus, with the S&P 500 futures down by 0.36% to 2,010.00 and Nasdaq futures down by 0.50% to 4,366.25 during the morning London session.

MPC rate decision and minutes – The BOE released the minutes for its monetary policy huddle and it was revealed that the MPC members voted 9-0 to keep the official bank rate at 0.50% and the asset purchase facility at £375 billion. Near-term inflation outlook was also essentially unchanged from the Februaru inflation report while Q1 2016 GDP is expected to grow “at around average rates over the forecast period” or roughly the same pace as in Q4 2015.

The BOE also noted that the pound’s recent weakness, attributing it to “increased uncertainty surrounding the forthcoming referendum on UK membership of the European Union.” More importantly, the BOE refrained from jawboning the pound. Finally, the BOE said that “it is more likely than not that Bank Rate will need to increase over the forecast period,” which means that a rate hike is still the next likely move. Overall, everything was within expectations and the BOE’s tone was somewhat balanced.

Major Currency Movers:

CHF – The prevalence of risk aversion caused forex traders to flee to the safe-haven Swissy despite the SNB’s warning that it still views the Swissy as “significantly overvalued” and threat that it will intervene in the forex market if needed.

USD/CHF was down by 71 pips (-0.73%) to 0.9681, AUD/CHF was down by 57 pips (-0.77%) to 0.7379, NZD/CHF was down by 29 pips (-0.44%) to 0.6602

EUR – The euro’s strong performance from yesterday soured sentiment on European equities during today’s morning London session, and this aversion to risk was just great for the lower-yielding euro.

EUR/USD was up by 65 pips (+0.59%) to 1.1325, EUR/AUD was up by 92 pips (+0.63%) to 1.4857, EUR/CAD was up by 49 pips (+0.34%) to 1.4742

GBP – The pound was climbing higher even before the release of the MPC meeting minutes and despite the risk-off environment. There weren’t any catalysts for the pound’s strength at the time, however. The pound later climbed faster when the MPC meeting minutes finally came out and it was reveals that the BOE officials refrained from jawboning the pound while presenting a balanced tone.

GBP/USD was up by 104 pips (+0.73%) to 1.4358, GBP/AUD was up by 141 pips (+0.76%) to 1.8835, GBP/NZD was up by 89 pips (+0.43%) to 2.1048

Watch Out For:

  • 1:30 pm GMT: Canadian wholesale sales (0.3% expected, 2.0% previous)
  • 1:30 pm GMT: U.S. current account (-$118.0B expected, -$124.1B previous)
  • 1:30 pm GMT: U.S. initial jobless claims (268K expected, 259K previous)
  • 1:30 pm GMT: Philadelphia Fed survey (-1.5 expected, -2.8 previous)
  • 3:00 pm GMT: CB U.S. leading indicator (0.2% expected, -0.2% previous)
  • 3:00 pm GMT: JOLTS job openings (5.57M expected, 5.61M previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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