London Session Forex Recap – May 24, 2016

  • German final Q1 GDP q/q: unrevised at 0.7% as expected
  • German final Q1 GDP y/y: unrevised at 1.6% as expected
  • Swiss trade balance: CHF 2.50B vs. CHF 2.18B previous
  • French INSEE manufacturing confidence: 104 as expected vs. 105 previous
  • U.K. public sector net borrowing: £6.6B vs. £6.3B expected vs. £6.1B previous
  • German ZEW economic sentiment: 6.4 vs. 12.0 expected, 11.2 previous
  • Euro Zone ZEW economic sentiment: 16.8 vs. 23.4 expected, 21.5 previous

Risk sentiment was still the main driving force for forex price action during today’s morning London session, but there was also some wonky price action, namely from the pound and the Aussie.

Major Events/Reports:

BOE Carney grilledBOE Guv’nah Mark Carney and company testified before the British Parliament’s Treasury Select Committee earlier today and some rather nasty stuff (for pound bulls) were said. For instance, Carney was asked if the BOE’s will retain its hiking bias in case a Brexit does occur, to which Carney replied that a Brexit “would reduce that probability.”

Carney also said that if the pro-Brexit camp wins, then the pound will likely fall by 5%. In addition, “there will be a material slowing in growth and it is likely that inflation will rise” in the event of a Brexit. And Carney made it clear that the BOE will not “stand in the way of necessary adjustment in the exchange rate,” which is to say that the BOE has no plans of intervention in case of a Brexit.

There were also some hilarious instances, namely when Carney was allowed to defend himself from allegations that Goldman Sachs “put pressure” on him to adopt a somewhat anti-Brexit view, to which Carney replied with a rather stunned “Wow…” before vehemently refuting such allegations. Comedy gold, I say. Anyhow, there’s wasn’t really much to feed the pound bulls, and yet the bulls reigned supreme, which is why I said that the pound’s price action was rather wonky earlier.

Risk appetite returns – Risk aversion persisted at the start of today’s morning London session, but there was a sudden shift in sentiment and very clear signs of risk-taking finally emerged, with the pan-European FTSEurofirst 300 up by a solid 1.27% to 1,336.30, the Euro Stoxx 50 up by a respectable 1.15% to 2,973.50, and the DAX up by 0.97% to 9,938.00.

The safe-haven gold was also kicked 0.76% lower to $1,241.95 per troy ounce by the end of the session while U.S. equity futures were hinting that the risk-on vibes may carry over into the U.S. session, with the S&P 500 futures index up by 0.32% to 2,051.75 and the Nasdaq futures index up by 0.34% to 4,367.12.

However, market analysts couldn’t really pinpoint a catalyst for the change in risk sentiment. Financial companies were leading the way higher, though, so some market watchers were preaching their skepticism over the European rebound for all to hear, saying that expectations of a June rate hike from the Fed will likely continue to weigh down on risk sentiment on the days to come.

Major Currency Movers:

AUD – The risk-on sentiment fueled demand for the CAD and NZD, which are both higher-yielding comdolls, but demand for the Aussie was very noticeably absent. It’s possible that European forex traders were pricing-in RBA Stevens’ hints of a possible future rate cuts, although it’s also possible that demand for the Aussie got sapped because of sinking iron ore prices.

AUD/USD was down by 12 pips (-0.16%) to 0.7152, AUD/NZD was down by 41 pips (-0.39%) to 1.0641, AUD/CAD was down by 35 pips (-0.38%) to 0.9407

EUR & JPY – The prevalence of risk-appetite was most unkind to the safe-haven yen, although the euro got clobbered too, probably because European market players were abandoning the lower-yielding euro for riskier assets such as European equities.

USD/JPY was up by 29 pips (+0.27%) to 109.69, NZD/JPY was up by 36 pips (+0.49%) to 73.71, GBP/JPY was up by 171 pips (+1.08%) to 160.14

EUR/USD was down by 30 pips (-0.27%) to 1.1170, EUR/CAD was down by 70 pips (-0.48%) to 1.4693, EUR/GBP was down by 82 pips (-1.07%) to 0.7649

GBP – The pound surged higher right when the morning London session opened and without any apparent catalysts. And the pound’s upward march throughout the session was relentless, so much so that it just shrugged off the downbeat remarks from BOE Carney.

GBP/USD was up by 118 pips (+0.82%) to 1.4600, GBP/NZD was up by 126 pips (+0.59%) to 2.1719, GBP/AUD was up by 193 pips (+0.96%) to 2.0409

Watch Out For:

  • 2:00 pm GMT: U.S. new home sales (0.52M expected, 0.51M previous)
  • 2:00 pm GMT: U.S. Richmond manufacturing index (9 expected, 14 previous)
  • 10:45 pm GMT: New Zealand’s trade balance (NZD 80.0B expected, NZD 117.0B previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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