London Session Forex Recap – May 26, 2016

  • Swiss industrial production y/y: 1.0% vs. -4.3% previous
  • Italian retail sales m/m: -0.6% vs. 0.2% expected, 0.3% previous
  • U.K. BBA mortgage approvals: 40.1K vs. 44.7K expected, 43.9K previous
  • U.K. 2nd Q1 GDP estimate q/q: unchanged at 0.4% as expected
  • U.K. 2nd Q1 GDP estimate y/y: revised lower to 2.0 vs. steady at 2.1% expected
  • U.K. preliminary business investment q/q: -0.5% vs. 3.2% expected, -2.0% previous

The pound got slapped lower across the board during today’s morning London session, thanks to a bunch of disappointing economic reports. Meanwhile, the comdolls got a bullish boost due to another round of rallying commodity prices.

Major Events/Reports:

Poor U.K. economic reports – The U.K. got a bunch of economic reports earlier and they were all disappointing to a lesser or greater degree. Up first, the British Bankers’ Association (BBA) reported that mortgage approvals in April dropped to 40.1K, which is fewer than the 44.7K expected and the previous month’s downwardly revised 43.9K reading (45.1K originally).

The current number of approvals is also the smallest since March 2015, which implies that the housing market in the U.K. is cooling down. However, the BBA said that the slide was expected because higher approvals during the previous months were due to Stamp-Duty rush.

Next, the preliminary estimate for business investment in the U.K. during Q1 contracted by 0.5% quarter-on-quarter. This is a severe disappointment because it was expected to expand by 3.2% and also marks the second consecutive quarter that business investment has declined.

Finally, the second reading for Q1 2016’s GDP growth was unchanged at 0.4% quarter-on-quarter, but was revised slightly lower to 2.0 from 2.1% on a year-on-year basis. Not really that significant of a downgrade, but still a disappointment nonetheless.

Commodities continue to rallyCommodities were still broadly in the green during today’s morning London session. There were reports that attempted to explain the rise of individual currencies, such as easing oversupply jitters in the case of oil, but market analysts couldn’t really pinpoint the reason for the broad-based rally.

The Greenback has been weakened by lack of safe-haven demand since yesterday, so it’s possible that we’re just seeing some bargain buying now that commodities are relatively cheap.

In any case, the precious metals gold and silver were respectively up by 0.30% to $1,227.45 per troy ounce and 1.41% to $16.490 per troy ounce. The industrial metal copper, meanwhile, was up by 0.93% to $2.121 per pound. As for oil benchmarks, U.S. crude oil was up by 1.13% to $50.12 per barrel while Brent crude oil was up by 1.37% to $50.42 per barrel by the end of the session.

Another risk-on session – Risk-taking was the name of the game during the session, with pan-European FTSEurofirst 300 up by 0.20% to 1,369.51, the Euro Stoxx 50 up by 0.33% to 3,072.00, and the DAX up by 0.72% to 10,279.00 near the end of the session. U.S. equity futures were also enjoying the risk on vibes, with the S&P 500 futures index up by 0.11% to 2,089.50 and the Nasdaq futures index up by 0.14% to 4,481.00.

Market analysts generally attributed the prevalence of risk appetite during the session to the commodities rally, particularly rising oil prices.

Major Currency Movers:

Comdolls – Since commodities were in rally mode and risk-appetite was the prevailing risk sentiment during the morning London session, it’s therefore only natural that the higher-yielding comdolls (AUD, CAD, NZD) were getting a lot of loving from forex traders.

USD/CAD was down by 44 pips (-0.34%) to 1.2945, EUR/CAD was down by 51 pips (-0.35%) to 1.4460

NZD/USD was up by 38 pips (+0.58%) to 0.6733, NZD/CHF was up by 49 pips (+0.75%) to 0.6677

AUD/CHF was up by 31 pips (+0.45%) to 0.7154, AUD/JPY was up by 37 pips (+0.47%) to 79.41

Safe-havens – The risk-on environment during the session was great for the higher-yielding comdolls, but it was pretty toxic for the safe-haven currencies (USD, JPY, CHF).

NZD/USD was up by 38 pips (+0.58%) to 0.6733, AUD/USD was up by 22 pips (+0.31%) to 0.7215

USD/JPY was up by 18 pips (+0.16%) to 110.07, NZD/JPY was up by 56 pips (+0.76%) to 74.11

USD/CHF was up by 14 pips (+0.15%) to 0.9916, CAD/CHF was up by 37 pips (+0.49%) to 0.7659

GBP – The pound was already showing signs of weakness at the start of the session, likely because the latest Brexit-related poll, which was published a couple of hours before the London session rolled around, showed that the “leave” camp had a one percentage point lead over the “remain” camp (45% leave vs. 44% remain, 12% undecided). However, pound pairs really got slammed hard after economic reports for the U.K. were released almost simultaneously, and they were all disappointing to boot.

GBP/USD was down by 24 pips (-0.17%) to 1.4703, GBP/NZD was down by 164 pips (-0.75%) to 2.1833, GBP/CAD was down by 97 pips (-0.51%) to 1.9034

Watch Out For:

  • 12:30 pm GMT: U.S. initial jobless claims (275K expected, 278K previous)
  • 12:30 pm GMT: Headline (0.5% expected, 0.8% previous) and core (0.3% expected, -0.2% previous) readings for U.S. durable goods orders
  • 12:30 pm GMT: Canadian corporate profits (-3.1% previous)
  • 1:00 pm GMT: RBA Assistant Governor Guy Debelle will give a short speech
  • 2:00 pm GMT: U.S. pending home sales (0.7% expected, 1.4% previous)
  • 4:00 pm GMT: Federal Reserve Governor Jerome Powell is scheduled to speak
  • 10:30 pm GMT: RBA Assistant Governor Guy Debelle will be speaking again

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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