London Session Forex Recap – May 5, 2016

  • Switzerland, Germany and France on Ascension Day holiday today
  • U.K. services PMI: 52.3 vs. 53.5 expected, 53.7 previous
  • U.S. Challenger job cuts y/y: 5.8% vs. 31.7% previous

We had some rather wonky price action during today’s morning London session, but it looks like forex traders were turning mainly to risk sentiment  again for direction, given that the forex calendar was rather sparse.

Major Events/Reports:

Disappointing U.K. services PMI – Markit released the April services PMI reading for the U.K. earlier during the session and it was pretty bad since it came in at 52.3, which is the lowest reading in over three years (38 months to be more exact).

Chris Williamson, Chief Economist at Markit, commented that: “The slowdown in the service sector follows similar weakness in manufacturing and construction to make a triple-whammy of disappointing news on the health of the economy at the start of the second quarter.”

Williamson also commented that: “The deterioration in April pushes the surveys into territory which has in the past seen the Bank of England start to worry about the need to revive growth, either by cutting interest rates or through non-standard measures such as QE.” Yikes! Nasty stuff, yeah?

Forex traders seem to have priced-in the possibility of a poor report, though, since the pound actually climbed across the board when the poor PMI report was released, although pound pairs ultimately ended the session mixed after some rather choppy reading  (except for GBP/CHF, which just kept on soaring throughout the session).

Commodities recover – After being routed for several days, commodities were finally in the green today and they even extended their gains during today’s morning London session, with the precious metal gold up by 0.44% to $1,280.00 per troy ounce by the end of the session.

Market analysts couldn’t pinpoint a catalyst for the broad-based commodities rally, so it was likely due to bargain buying after several days of declining commodity prices. With regard to oil, most market analysts are still attributing the surge in oil prices to the wildfires in Canada’s oil-rich province of Alberta, although some market analysts are also pointing to U.S. oil production sliding to an eight-month low.

U.S. crude oil was up by a very solid 3.06% to $45.12 per barrel near the end of the morning London session while Brent blend crude oil was up by 2.51% to $45.74 per barrel.

Base metals were still in the red, however, with copper down by 1.9% to $2.156 per pound during the session. This is likely due to continuing disappointment over China’s poor manufacturing PMI readings, which would mean lower demand for base metals like copper and iron.

Modest risk appetite – Signs of risk-taking finally returned to the European markets after three days of gloom and doom. with the pan-European FTSEurofirst 300 up 0.23% to 1,305.66, the Euro Stoxx 50 up by 0.48% to 2,948.50, and the DAX up by 0.46% to 9,873.00. U.S. equity futures were also moderately in positive territory, so the risk-on sentiment may carry over into the U.S. session, with the S&P 500 futures up by 0.40% to 2,055.25 and the Nasdaq futures up by 0.31% to 4,322.62.

Market analysts attributed the risk-friendly environment to positive earnings reports for some European companies, as well as the surge in oil prices, which also fueled (haha!) demand for European oil company shares.

Major Currency Movers:

CHF – The risk-on vibes during the morning London was pretty toxic for the safe-haven Swissy since it ended up as the weakest currency of the session. Of course, it’s also possible that the SNB is sneakily weakening the Swissy again.

EUR/CHF was up by 15 pips (+0.14%) to 1.1015, CAD/CHF was up by 37 pips (+0.51%) to 0.7507, AUD/CHF was up by 29 pips (+0.42%) to 0.7217

USD – The Greenback won out against all its forex rivals during the morning London session, which is rather weird because there was no major catalyst and the risk-on sentiment should have dampened demand for the safe-haven Greenback. I told ya price action was kinda wonky during the morning London session.

USD/CAD was up by 18 pips (+0.14%) to 1.2835, USD/CHF was up by 60 pips (+0.63%) to 0.9636, USD/JPY was up by 6 pips (+0.06%) to 107.17

EUR – European forex traders were probably abandoning the lower-yielding euro for European equities or commodities since the euro ended up being the second-weakest currency of the morning London session after the Swissy.

EUR/USD was down by 55 pips (-0.48%) to 1.1431, EUR/JPY was down by 47 pips (-0.38%) to 122.51, EUR/NZD was down by 57 pips (-0.34%) to 1.6568

Watch Out For:

  • 12:30 pm GMT: Canadian building permits (-4.8% vs. 15.5% previous)
  • 12:30 pm GMT: U.S. initial jobless claims (260K expected, 257K previous)
  • 3:30 pm GMT: St. Louis Fed President James Bullard has a speech
  • 11:15 pm GMT: St. Louis Fed President James Bullard has another speech

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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