London Session Forex Recap – May 12, 2016

  • German WPI m/m: 0.3% vs. 0.2% expected, 0.3% previous
  • French HICP m/m: -0.1% vs. 0.1% expected, 0.1% previous
  • French HICP y/y: -0.2% vs. -0.1% expected, -0.2% previous
  • Euro Zone industrial production m/m: -0.8% vs. 0.0% expected, -1.2% previous
  • Euro Zone industrial production y/y: 0.2% vs. 0.9% expected, 1.0% previous
  • MPC meeting minutes: 9-0 vote to hold official bank rate 0.50% as expected
  • MPC meeting minutes: 9-0 vote to maintain asset purchases at £375B as expected
  • Press conference with BOE Head Mark Carney still underway; watch it live here

All eyes were on the pound during the morning London session, thanks to the MPC decision. The pound wasn’t the only major mover, however, since the yen and the Loonie were on the move as well.

Major Events/Reports:

MPC statement – The BOE’s MPC released the minutes of their deliberations earlier, together with their May Inflation Report, and I have listed down the most important points below for easier reading:

  • 9-0 vote to hold official bank rate 0.50%
  • 9-0 vote to maintain stock of purchased assets at £375B
  • Annual inflation is expected to only increase by 0.3% in April, which is slower than March’s 0.5% increase
  • The BOE still expects that external factors such as the fall in oil and food prices to dissipate over the next year
  • The BOE also expects domestic inflationary pressure to increase
  • As such, “it is more likely than not that Bank Rate will need to be higher by the end of the forecast period than at present,” so the BOE is still biased towards hiking rates
  • The BOE acknowledged that the economy slowed in Q1 and is expected to slow further in Q2
  • Q2 GDP is now expected to grow by 0.3% (0.5% originally)
  • The slowdown was likely due to the Brexit referendum
  • The Brexit issue is the biggest risk factor to the BOE’s forecasts
  • A Brexit would likely cause the pound to fall, perhaps “sharply”
  • A Brexit would also put the BOE into a dilemma “between stabilizing inflation on the one hand and output and employment on the other”
  • The BOE refrained from giving specifics on how it plans to respond to a Brexit, but it emphasized returning inflation to its 2% target

Oil climbs higher – Oil benchmarks extended their gains during the morning London session, with U.S. crude oil up by 1.15% to $46.76 per barrel and Brent crude oil up by 0.65% to $47.91 per barrel near the end of the session.

Market analysts are still attributing the oil rally to an earlier report from the International Energy Agency (IEA) that oil output from non-OPEC producers will fall by 800,000 barrels per day, thereby removing some pressure from the supply side of the oil glut equation.

Risk appetite returns to Europe – There was risk-taking aplenty during the morning London session, with the pan-European FTSEurofirst 300 up by 0.58% to 1,322.88, the Euro Stoxx 50 up by 1.07% to 2,988.50, and the DAX by by 1.03% to 10,078.00 near the end of the morning London session.

Meanwhile, the safe-haven gold was kicked 0.56% lower to $1,268.35 per troy ounce while U.S. equity futures are signalling that the risk-on sentiment may carry over into the U.S. session, with the S&P 500 futures up by 0.60% to 2,070.25 and the Nasdaq futures up by 0.59% to 4,377.25 by the end of the session.

Market analysts noted that oil stocks were leading the way higher, so it’s probably safe to say the the upbeat mood was due to the continuing rally in oil prices.

Major Currency Movers:

JPY – The risk-friendly environment during the morning London session was pretty toxic for the safe-haven yen, sending it lower against all its forex rivals.

USD/JPY was up by 40 pips (+0.37%) to 109.37, CAD/JPY was up by 47 pips (+0.56%) to 85.17, GBP/JPY was up by 80 pips (+0.52%) to 157.99

CAD – The oil rally and the prevalence of risk appetite during the morning London session fueled demand for the high-yielding Loonie.

USD/CAD was down by 25 pips (-0.20%) to 1.2840, AUD/CAD was down by 17 pips (-0.18%) to 0.9406, NZD/CAD was down by 35 pips (-0.40%) to 0.8741

GBP – The pound’s price action was a bit mixed for most of the morning London session, but pound pairs uniformly jumped higher when it was announced that the BOE’s MPC members voted unanimously to maintain the current monetary policy while maintaining their monetary policy bias of hiking rates in the future.

However, pound bulls had difficulty pressing their advantage, with most pound pairs giving back their gains, probably because of a mix of profit-taking and because forex traders were waiting for BOE Carney’s press conference.

GBP/USD was up by 22 pips (+0.16%) to 1.4445 with 1.4497 as session high, GBP/CHF was up by 18 pips (+0.13%) to 1.4038 with 1.4069 as session high, GBP/CAD was down by 9 pips (-0.05%) to 1.8547 with 1.8614 as session high

Watch Out For:

  • Press conference with BOE Head Mark Carney still underway; watch it live here
  • 12:30 pm GMT: U.S. import price index (0.6% expected, 0.2% previous)
  • 12:30 pm GMT: Canadian NHPI (0.1% expected, 0.2% previous)
  • 12:30 pm GMT: U.S. initial jobless claims (270K expected, 274K previous)
  • 3:45 pm GMT: Boston Fed President Eric Rosengren will talk about his economic outlook
  • 5:30 pm GMT: Kansas City Fed President Esther George will talk about the U.S. economy

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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