London Session Forex Recap – Apr. 5, 2016

  • German factory orders m/m: -1.2% vs. 0.4% expected, 0.5% previous
  • German factory orders y/y: 0.5% vs. 2.2% expected, 0.5% previous
  • Spanish services PMI: 55.3 vs. 54.2 expected, 54.1 previous
  • Italian services PMI: 51.2 vs. 54.3 expected, 53.8 previous
  • French final services PMI: revised lower to 49.9 vs. unchanged at 51.2 expected
  • German final services PMI: revised lower to 55.1 vs. unchanged at 55.5 expected
  • Euro Zone final services PMI: revised lower to 53.1 vs. unchanged at 54.0 expected
  • U.K. services PMI: 53.7 vs. 53.8 expected, 52.7 previous
  • Euro Zone retail trade: 2.4% vs. 1.9% expected, 2.0% previous

There were a lot of economic reports during the morning London session, but forex price action was being influenced more by the risk-off sentiment. And quite naturally, the safe-havens were giving the higher-yielding currencies a severe beat-down.

Major Events/Reports:

German factory orders dropNew orders in the German manufacturing sector contracted by 1.2% month-on-month in February, which is pretty bad since market players were expecting a 0.4% increase. The previous reading was upgraded to a 0.5% increase (-0.1% unrevised), though

The disappointing reading didn’t really have that much of an effect on the euro’s (rather mixed) forex price action, but it likely sparked risk aversion in German equities, which helped to fuel demand for safe-haven currencies during the morning London session.

U.K. services PMI – The United Kingdom’s services PMI reading for the March period came in at 53.7, narrowly missing the consensus reading of 53.8, but still an improvement over the previous 52.7 figure.

Commentary from the PMI report was a bit downbeat, however. For instance, the volume of incoming new business grew at the slowest pace since January 2013. Employment also continued to grow at a pace below the 39-month trend. Also, business outlook is being subdued by jitters over the upcoming Brexit referendum.

Neither the reading nor the downbeat commentary had a significant impact on the pound, though, since the pound’s forex price action (like that of the euro’s) was mixed during the session.

Oil retreats – Oil retreated during the morning London session on continued skepticism over the possibility of a positive outcome for the upcoming oil freeze huddle, as well as an unexpected drop in demand for gasoline from the U.S., according to market analysts.

U.S. crude oil was down by 0.31% to $35.59 per barrel while Brent crude oil was down by 0.45% to $37.52 per barrel during the morning London session.

Doom and gloom during the session – There was intense risk aversion during the morning London session, with the pan-European FTSEurofirst 300 down by 1.70% to 1,290.40 and the DAX down by a painful 2.32% to 9,594.00 while gold was enjoying safe-haven flows and was up by 1.27% to $1,234.80 per troy ounce during the session.

The feelings of doom and gloom look like they’ll carry over into the U.S. session as well, with the S&P 500 futures down by 0.74% to 2,042.25 and Nasdaq futures down by 0.60% to 4,473.38.

Aside from the risk aversion spillover from the earlier Asian session and dropping oil prices, market players also noted that German stocks were leading European equities lower, likely because of the disappointing drop in German factory orders.

More BOJ easing rumors – I noted last week that there were rumors about Japanese Prime Minister Shinzo Abe introducing more stimulus to the Japanese economy. Well, we got more rumors today, and this time it’s about the BOJ.

According to unnamed sources “familiar” with the BOJ’s thinking that were being cited by Reuters, the BOJ will likely debate about further easing during the upcoming monetary policy meeting this month, with increasing asset purchases being the more likely move, rather than another rate cut.

Major Currency Movers:

Safe-havens – The safe-haven currencies (USD, JPY, CHF) were having a field day during the morning London session, thanks to the prevalence of risk aversion. The safe-havens were roughly flat against each other, but the yen very noticeable lost out near the end, and even returned some of its gains to its other forex rivals, probably because of the rumors about further easing talks.

GBP/USD was down by 50 pips (-0.35%) to 1.4188, EUR/USD was down by 23 pips (-0.21%) to 1.1362, NZD/USD was down by 16 pips (-0.23%) to 0.6769

EUR/CHF was down by 20 pips (-0.20%) to 1.0892, CAD/CHF was down by 37 pips (-0.50%) to 0.7280, AUD/CHF was down by 53 pips (-0.74%) to 0.7226

USD/JPY was up by 22 pips (+0.20%) to 110.64, CHF/JPY was up by 24 pips (+0.21%) to 115.41, AUD/JPY was down by 46 pips (-0.55%) to 83.38

AUD – The prevailing risk-off sentiment was toxic for all the higher-yielding comdolls (AUD, NZD, CAD), but the Aussie was noticeably the most vulnerable since it even lost out to its fellow comdolls, which made it the weakest currency during the morning London session.

As to why the Aussie was very vulnerable, that was likely due to European forex traders pricing-in the RBA’s monetary policy statement from earlier, particularly the statement that “an appreciating exchange rate could complicate the adjustment under way in the economy,” which basically means that a stronger Aussie dollar could be problematic for Australia.

AUD/USD was down by 56 pips (-0.74%) to 0.7537, AUD/CAD was down by 23 pips (-0.24%) to 0.9923, AUD/NZD was down by 58 pips (-0.52%) to 1.1132

Watch Out For:

  • 1:30 pm GMT: Canadian trade balance (-$0.75B expected, -$0.66B previous)
  • 1:30 pm GMT: U.S. trade balance (-$46.30B expected, -$45.68B previous)
  • 2:45 pm GMT: Markit final U.S. services PMI (unchanged at 51.0 expected)
  • 3:00 pm GMT: ISM U.S. non-manufacturing PMI (54.0 expected, 53.4 previous)
  • 3:00 pm GMT: IBD U.S. consumer optimism (47.5 expected, 46.8 previous)
  • 3:00 pm GMT: JOLTS U.S. job openings (5.57M expected, 5.54M previous)
  • 8:00 pm GMT: BOC Senior Deputy Governor Carolyn Wilkins has a speech about China
  • 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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