London Session Forex Recap – Apr. 21, 2016

  • Swiss trade balance: CHF 2.16B vs. CHF B 4.02B previous
  • U.K. retail sales m/m: -1.3% vs. -0.1% expected -0.5% previous
  • U.K. core retail sales m/m: -1.6% vs. -0.3% expected, -0.3% previous
  • U.K. public sector net borrowing: £4.16B vs. £5.50B expected, £6.33B previous
  • ECB maintains refinancing rate at 0.00% as expected
  • ECB maintains marginal lending rate at 0.25% as expected
  • ECB maintains deposit rate at -0.40% as expected
  • ECB maintains QE program at €80B as expected
  • ECB press conference coming up; watch it live here

The ECB maintained its monetary policy, but volatility remained subdued as forex traders waited for the ECB press conference. That didn’t stop the euro from climbing higher, though.

Major Events/Reports:

ECB monetary policy decision – As expected, the ECB decided to maintain its monetary policy but promised to talk more “on the implementation of the additional non-standard measures decided on 10 March 2016,” so forex traders are now waiting for what Draghi has to say in the upcoming ECB press conference.

Poor U.K. retail sales – The United Kingdom’s retail sales volume in March got clobbered, with the headline reading contracting by 1.3%, which is much bigger than the expected 0.1% contraction and the previous month’s 0.5% decline. The core reading also took a beating since it contracted by 1.6%, which is worse than the expected 0.3% decrease. Average store prices also by 3.0% year-on-year, which is the 21st consecutive year-on-year decline and doesn’t bode well for CPI.

U.K. public sector borrowing narrows – Public sector net borrowing in the U.K. came in at £4.16 billion in March, which is narrower than the £5.50 billion expected and the previous month’s £6.33 billion figure. This means that the budget deficit of the U.K. government is smaller, which is good for the U.K., but the March total of £74 billion still exceeds U.K. Chancellor of the Exchequer George Osborne’s forecast of £72.2 billion.

Tight trading conditions – Volatility for most pairs got sapped during the morning London session. It was already pretty much a given that the ECB will maintain its current monetary policy, so forex traders were probably  behaving themselves ahead of the ECB press conference.

European equities retreat – Risk aversion was the dominant risk sentiment during the morning London session, with the Pan-European FTSEurofirst 300 down by 0.56% to 1,374.26, the Euro Stoxx 50 down by 0.17% to 3,141.00, and the DAX down by 0.33% to 10,387.00 during the session. Commodities were still in rally mode during the session, so the skittish risk sentiment was likely due to caution ahead of the ECB’s press conference.

Major Currency Movers:

EUR – The squeeze on European equities during the morning London session probably generated capital flows that made their way to the lower-yielding euro since the euro was giving most of its forex rivals a good beat-down. The euro then got fresh buyers that sent it higher when the ECB announced that it was maintaining its monetary policy, as expected.

EUR/USD was up by 28 pips (+0.25%) to 1.1327, EUR/JPY was up by 41 pips (+0.34%) to 124.27, EUR/AUD was up by 37 pips (+0.26%) to 1.4510

GBP – The euro was not the strongest currency during the session since the pound was easily able to win out against the it. The pound actually started the morning London session on a weak footing, and this weakness was amplified when the retail sales report came out. However, the pound made a turnaround, although there were no clear catalysts. The United Kingdom’s budget deficit narrowed in March, but that report actually came out at the same time as the retail sales report.

GBP/USD was up by 43 pips (+0.31%) to 1.4389, GBP/CAD was up by 92 pips (+0.51%) to 1.8213, GBP/NZD was up by 71 pips (+0.34%) to 2.0668

Watch Out For:

  • 1:30 pm GMT: ECB press conferences; watch it live here
  • 1:30 pm GMT: U.S. Philadelphia Fed survey (9.0 expected, 12.4 previous)
  • 1:30 pm GMT: U.S. initial jobless claims (265K expected, 253K previous)
  • 2:00 pm GMT: U.S. FHFA HPI (0.4% expected, 0.5% previous)
  • 3:00 pm GMT: U.S. CB leading indicator (0.4% expected, 0.1% previous)
  • 3:00 pm GMT: Euro Zone consumer confidence (-9 expected, -10 previous)
  • 3:00 pm GMT: BOE Governor Mark Carney has a speech

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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