London Session Forex Recap – June 27, 2016

  • Euro Zone M3 money supply y/y: 4.9% vs. 4.8% expected, 4.6% previous
  • Euro Zone private loans y/y: 1.6% as expected, 1.5% previous
  • SNB sight deposits (domestic): CHF 423,466M vs. CHF 416,535M previous
  • ECB Draghi will give a short speech later

The pound and the euro extended their losses during the morning London session. And despite attempts from UK Finance Minister Osborne to calm the markets, risk aversion prevailed, so the yen was in demand again.

Major Events/Reports:

Osborne Speaks – UK Finance Minister George Osborne tried to scare supporters of a Brexit in the run-up to the referendum by saying that a £30 billion so-called “punishment budget” was needed in the event of a pro-Brexit vote.

However, in his speech earlier today, he backed off on that in a bid to calm the market, saying that a new budget is not needed until a new PM is elected in Autumn after Cameron steps down in October.

Other statements meant to calm the market include reassurances that contingency plans are in place he has been in contact with key officials from the IMF, top British financial institutions, central bankers and other European finance ministers, as well as the U.S. treasury secretary.

SNB sight deposits increase – Compared to the week ending on June 17, 2016, there was a noticeable increase in sight deposits of domestic Swiss banks from 416,535 million Swiss francs to 423,466 million as of the week ending on June 24, 2016, which implies that the SNB was intervening in the markets again.

Oh, for the forex newbies out there, sight deposits are relatively easy to withdraw and transfer and sight deposits in domestic Swiss banks, in particular, are part of the monetary base, so they are one of the main tools used by the SNB for currency purchases (*cough* market manipulation *cough*).

Risk aversion persists – Europe is still reeling from last week’s pro-Brexit vote, according to market analysts. The pan-European FTSEurofirst 300 was down by 2.68% to 1,235.52, the blue-chip Euro Stoxx 50 was down y 1.98% to 2,724.50, the UK’s FTSE 100 was down by 1.62% to 6,039.00, and the DAX was down by 1.97% to 9,368.50. The safe-haven gold, meanwhile, was up by 0.76% to $1,332.50 per troy ounce.

Rumors from Japan – In an emergency meeting earlier today, Japanese PM Shinzo Abe told Finance Minister Taro Aso to observe the forex market “ever more closely.” Aso was also “instructed by the prime minister to take various, aggressive responses to ensure stability in financial and currency markets.” In addition, unnamed sources told Reuters that Abe is planning to expand fiscal stimulus by more than 10 trillion yen to help support the Japanese economy.

Major Currency Movers:

GBP & EUR – The pound and the euro are still feeling the burn from last week’s pro-Brexit vote since they were respectively the worst-performing and second-worst-performing currencies of the session. Looks like Osborne’s attempt to soothe the market was a dud, huh?

GBP/USD was down by 275 pips (-2.00%) to 1.3168, GBP/JPY was down by 336 pips (-2.42%) to 133.79, GBP/CAD was down by 333 pips (-1.90%) to 1.7187

EUR/USD was down by 90 pips (-0.82%) to 1.0973, EUR/JPY was down by 143 pips (-1.25%) to 111.49, EUR/NZD was down by 46 pips (-0.30%) to 1.5573

JPY – Rumors of further stimulus and hint of intervention were not enough to stop demand for the safe-haven yen (during this session at least), since the yen ended up as the king of pips (or queen, if you like) during the morning London session.

USD/JPY was down by 44 pips (-0.44%) to 101.52, AUD/JPY was down by 83 pips (-1.08%) to 75.17, CHF/JPY was down by 90 pips (-0.86%) to 103.96

CHF – Despite being a safe-haven currency, the Swissy ended up as the third-weakest currency after the pound and the euro, probably because the rise in sight deposits indicated that the SNB isn’t just blowing air when it said that it was intervening in the forex market last week. Now that I think about it, it’s also possible that the SNB was sneakily weakening the Swissy yet again.

USD/CHF was up by 31 pips (+0.32%) to 0.9767, NZD/CHF was up by 10 pips (+0.14%) to 0.6893, CAD/CHF was up by 14 pips (+0.18%) to 0.7482

Watch Out For:

  • 12:30 pm GMT: U.S. advance good trade balance (-$59.5B expected, -$57.5B previous)
  • 1:45 pm GMT: Markit’s flash U.S. services PMI (52.0 expected, 51.3 previous)
  • 5:30 pm GMT: ECB President Mario Draghi will give a short speech in the ECB forum

See also:

Asian Session Forex Recap

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