London Session Forex Recap – June 28, 2016

  • German import prices m/m: 0.9% vs. 0.6% expected, -0.1% previous
  • German import prices y/y: -5.5% vs. -5.8% expected, -6.6% previous
  • French INSEE consumer confidence: 97 as expected, 98 previous
  • UK CBI distributive trades: 4 vs. 9 expected, 7 previous

Risk appetite made a solid comeback during today’s morning London session, which also offered some much-needed respite to both the pound and the euro.

Major Events/Reports:

China ready to intervene?In an earlier statement at the World Economic Forum, Chinese Premier Li Keqiang said that “It’s hard to avoid short-term volatility in China’s capital markets, but we won’t allow rollercoaster rides and drastic changes in the capital markets,” referring to the global financial turmoil in the aftermath of the UK vote for a Brexit.

More from Fitch – After downgrading its credit rating for the UK and even the friggin BOE, the US credit rating agency turned its gaze towards the EU. Fitch didn’t downgrade the EU or any of its member states’ credit ratings (yet), but warned that the “UK’s Brexit referendum will weigh on the economies of other EU member states.” Fitch pointed out that “The main driver of economic pressure will be lower exports to the UK,” and the pound’s recent fall is not helping any since it will make British exports relatively cheaper and more competitive.

Fitch also listed the most exposed EU members as “Ireland, Malta, Belgium, the Netherlands, Cyprus and Luxembourg, all of whose exports of goods and services to the UK are at least 8% of GDP.”

Commodities surgeMost commodities were rallying hard during the morning London session, with base metals and oil leading the charge.

Copper was up by 1.91% to $2.166 per pound while zinc was up by 2.35% to $139.10 per kilogram. As for oil benchmarks, US crude oil was up by 2.42% to $47.45 per barrel while Brent blend crude oil was up by 2.45% to $48.94 per barrel.

Market analysts attributed the rebound in commodity prices to the dip in the US dollar, as well the steadying in the global markets, which encouraged some bargain buyers to come out. However, one commodity that wasn’t getting a lot of love was the traditional safe-haven gold, since it was down by 0.77% to $1,314.55 per troy ounce. And market analysts blamed gold’s poor performance to stabilizing markets.

Risk appetite finally returns – After three days of doom and gloom over the pro-Brexit vote, risk appetite was finally resurrected and European equities finally glowed green, with the pan-European FTSEurofirst 300 was up by 2.31% to 1,251.35, the blue-chip Euro Stoxx 50 was up by 2.50% to 2,764.00, the UK’s FTSE 100 was up by 2.40% to 6,126.00, the DAX was up by 2.05% to 9,458.50.

Even US equity futures were signalling a possible risk-on spillover into the US session, with the S&P 500 futures index up buy 0.96% to 2,004.00 and the Nasdaq futures index up by 1.00% to 4,219.62.

Market analysts are saying that this bout of risk appetite was due to the bounce in oil prices and expectations that central banks are readying their response to the pro-Brexit vote, as well as calming nerves due to several months of leeway before Article 50 of the TEU will be triggered. It’s also possible that there was some bargain-hunting and profit-taking, though.

Major Currency Movers:

GBP & EUR – The pound and the euro finally found some respite as the European markets stabilized. Whether this is just a temporary bounce or the start of a recovery, isn’t really very clear, though.

GBP/USD was up by 34 pips (+0.26%) to 1.3343, GBP/JPY was up by 74 pips (+0.55%) to 136.59, GBP/CAD was up by 101 pips (+0.58%) to 1.7394

EUR/NZD was up by 38 pips (+0.25%) to 1.5676, EUR/AUD was up by 26 pips (+0.18%) to 1.4981, EUR/CAD was up by 51 pips (+0.36%) to 1.4434

CAD – Kiwi and Aussie pairs were trading sideways (but mostly up) during the morning London session, likely because forex traders are taking a break after pushing the two currencies broadly higher during the earlier Asian session. The same can’t be said for the Loonie, however, since it was the weakest currency of the session, even though oil prices were in positive territory. There weren’t any apparent catalysts that can account for the Loonie’s weakness during the session, however.

USD/CAD was up by 45 pips (+0.35%) to 1.3038, AUD/CAD was up by 19 pips (+0.19%) to 0.9636, NZD/CAD was up by 12 pips (+0.13%) to 0.9208

Watch Out For:

  • 12:30 pm GMT: Final estimate for Q1 US GDP (revision from 0.8% to 1.0% expected)
  • 12:30 pm GMT: Final estimate for US GDP price index (no revision from 0.6% expected)
  • 12:30 pm GMT: Final estimate for US core PCE price index (unchanged at 2.1% expected)
  • 1:00 pm GMT: S&P/CS composite US HPI (5.41% expected, 5.43% previous)
  • 2:00 pm GMT: US CB consumer confidence (93.5 expected, 92.6 previous)
  • 2:00 pm GMT: US Richmond manufacturing index (2 expected, -1 previous)
  • 4:00 pm GMT: SNB Governing Board Member Fritz Zurbrugg will give a speech
  • 11:00 pm GMT: Federal Reserve Governor Jerome Powell will talk about the economy and monetary policy

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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