London Session Forex Recap – May 2, 2016

  • May Day holiday in the U.K. today
  • Swiss retail sales y/y: -1.3% vs. -0.2% previous
  • Swiss manufacturing PMI: 54.7 vs. 53.5 expected, 53.2 precious
  • Spanish manufacturing PMI: 53.5 vs. 53.0 expected, 53.4 previous
  • Italian manufacturing PMI: 53.9 vs. 54.1 expected, 53.5 previous
  • French final manufacturing PMI: revised lower to 48.0 vs. unchanged at 48.3 expected
  • German final manufacturing PMI: revised lower to 51.8 vs. unchanged at 51.9 expected
  • Euro Zone final manufacturing PMI: revised higher to 51.7 vs. unchanged at 51.5 expected

Today may be a Monday, but there was plenty of action during today’s morning London session, as forex traders turned mainly to risk sentiment and commodities for direction.

Major Events/Reports:

Commodities climb higher – Commodities were broadly in the green during the morning London session, with the the base metal copper up by 0.21% to $2.288 per pound and the precious metal gold up by 0.74% to $1,300.05 per troy ounce.

Oil benchmarks, meanwhile, were still in the red because of higher oil output from OPEC in April, but they were already off their lows, with U.S. crude oil down by 0.11% to $45.87 per barrel after touching $45.44 earlier and Brent blend crude down by 0.44% to $47.16 per barrel after going as low as $46.67 per barrel earlier.

There weren’t any catalysts for the broad-based commodities rally, but it was likely due to the weakened dollar, which made commodities relatively cheaper.

Euro Zone PMI reports – Markit released its manufacturing PMI reports for the major Euro Zone economies, and it was a net positive overall. Spain’s manufacturing PMI reading in April, for instance, ticked higher to 53.5 from 53.4 instead of sliding lower to 53.0 as expected. And while Italy’s PMI reading failed to meet the consensus reading of 54.1 by coming in at 53.9, it’s still better than the previous reading of 53.5.

As for Germany, it’s final manufacturing PMI reading was revised lower to 51.8 from 51.9, but it’s still a three-month high. The only real disappointment came from France since its PMI reading was downgraded from 48.3 to 48.0 and this also marks the second consecutive month in a row that conditions in France’s manufacturing sector has deteriorated.

That’s A-okay, though, since the final manufacturing PMI reading for the entire Euro Zone ended up being revised higher to a three-month high of 51.7 from 51.5.

Risk-on session – Risk-taking was the name of the game during the morning London session, with the pan-European FTSEurofirst 300 up by 0.20% to 1,345.42, the Euro Stoxx 50 up by 0.21% to 3,040.50, and the DAX up by 1.04% to 10,143.00 near the end of the session. U.S. equity futures, meanwhile, were pointing to a likely risk sentiment spillover into the U.S. session, with the S&P 500 futures up by 0.27% to 2,064.62 and the Nasdaq futures up by 0.21% to 4,340.38 during the morning London session.

Market analysts attributed the risk-on session to the net positive manufacturing PMI reports, namely Germany’s three-month high reading, which makes sense because the DAX outperformed the other European equity indices and German stocks were leading the way higher. It’s also possible that general sentiment improves because of the broad-based commodities rally I mentioned earlier.

Major Currency Movers:

AUD & NZD – The commodities rally and the prevalence of risk appetite were wonderful for the higher-yielding comdolls (NZD, AUD, CAD), particularly the Aussie and the Kiwi. The Loonie was strong overall, too, but it had a more mixed performance, probably because oil was still in the red during the morning London session. Anyhow, the Aussie ended up being the strongest currency during the morning London session. But as to whether this was due to actual Aussie demand or Aussie shorts taking profits off the table after the Aussie got hammered last week and ahead of the RBA statement isn’t very clear, however.

AUD/USD was up by 28 pips (+0.37%) to 0.7640, AUD/JPY was up by 40 pips (+0.49%) to 81.43, AUD/CAD was up by 22 pips (+0.24%) to 0.9572

NZD/USD was up by 23 pips (+0.33%) to 0.7015, NZD/JPY was up by 33 pips (+0.45%) to 74.77, NZD/CAD was up by 17 pips (+0.20%) to 0.8788

JPY – The safe-haven currencies (USD, CHF, JPY) were getting burned by all that risk-taking during the morning London session, but the Japanese yen was really feeling the burn because it was the weakest currency of the session.

USD/JPY was up by 13 pips (+0.12%) to 106.60, CHF/JPY was up by 31 pips (+0.30%) to 111.28, EUR/JPY was up by 35 pips (+0.29%) to 122.40

GBP – The pound had a mixed performance for most of the morning London session, probably because British traders were away on holiday today, but there was a sudden bullish surge near the end of the session, which allowed the pound to finish as the second-strongest currency of the morning London session. However, there weren’t any apparent catalysts for the sudden bullishness.

GBP/USD was up by 34 pips (+0.23%) to 1.4659, GBP/JPY was up by 57 pips (+0.37%) to 156.28, GBP/CAD was up by 21 pips (+0.12%) to 1.8366

Watch Out For:

  • 1:30 pm GMT: RBC/Markit Canadian manufacturing PMI (51.5 previous)
  • 1:45 pm GMT: Markit’s final U.S. manufacturing PMI (no revision from 50.8 expected)
  • 2:00 pm GMT: U.S. construction spending (0.5% expected, -0.5% previous)
  • 2:00 pm GMT: ISM’s U.S. manufacturing PMI (51.4 expected, 51.8 previous)
  • 2:00 pm GMT: ECB President Mario Draghi is scheduled to speak
  • 5:25 PM GMT: SNB Chairman Thomas Jordan will be talking about monetary policy

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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