London Session Forex Recap – July 12, 2016

  • German final HICP m/m: unrevised at 0.1% as expected
  • German final HICP y/y: unrevised at 0.2% as expected
  • German WPI m/m: 0.6% vs. 0.3% expected, 0.9% previous
  • U.S. NFIB small business index: 94.5 vs. 94.1 expected, 93.8 previous

Another risk-on session and rallying commodities meant another round of demand for the comdolls. However, they all still lost out to the pound in the end, although comments from BOE Carney were beginning to attracting some pound bears.

Major Events/Reports:

BOE Carney and FPC friends testify – BOE Guv’nah Mark Carney and some members of the FPC testified before the Treasury Select Committee (TSC) today (and were still testifying by the time the morning London session ended).

Many issues were brought up, and one of them was regarding last week’s suspension of withdrawals from commercial property funds and the risks of a firesale. Carney said that “It’s hard to sell a building overnight at a fair price,” but FPC member Richard Sharpe said the risk of a firesale is low because “the gating [suspension of fund withdrawals] means they don’t have to make adversarial sales.”

Carney also assured the members of the TSC that British banks are well capitalized and have passed stress-testing, so a “credit crunch” like the one experience in 2008 and 2009 are highly unlikely.

Carney was also asked about the effectiveness of the FPC’s action of reducing the “countercyclical buffer rate from 0.5% to 0%” in order to allow British banks to lend more, and Carney replied that: “We would not represent this as a single silver bullet. It is part of a series of measures,” which is a good a hint as any that more measures are in the cards. And when asked on how the BOE would respond should the economic outlook deteriorate, Carney said that: “There always could be monetary response.”

Other than those, there were other items worth mentioning were questions about the BOE’s lack of impartiality when the BOE seemed to have sided with the “remain” during the pre-referendum campaigns, which Carney denied.

Risk appetite persists – Risk-taking was the name of the game during the morning London session, the pan-European FTSEurofirst 300 up by 0.91% to 1,327.48, the blue-chip Euro Stoxx 50 up by 1.69% to 2,933.00, and the DAX up by 1.55% to 9,986.00.

U.S. equity futures were also getting some love, with the S&P 500 futures index up by 0.46% to 2,140.00 and the Nasdaq futures index up by 0.50% to 4,572.12, so there’s a good chance that the risk appetite will spill over into the U.S. session.

Market analysts attributed the risk-on vibes to hopes for more stimulus in Japan, as well as easing political uncertainty in the U.K. after Leadsom decide to withdraw, leaving Theresa May unopposed as the next British PM.

Commodities rally really hardCommodities were in full rally mode during the morning London session. The industrial metal copper was up by 2.17% to 2.194 per pound while nickel was up by 3.29% to $697.0 per kilogram. Oil benchmarks were also soaring, with U.S. crude oil up by 2.97% to $46.09 per barrel and Brent crude oil up by 3.33% to $47.79 per barrel.

The great demand for commodities during the session was generally attributed to the relatively weaker dollar and the positive overall risk sentiment. There were also specific catalysts that were being cited. Oil, for instance, was on the rise because of easing oversupply jitters due to supply outages from Nigeria. Nickel, meanwhile, was rallying very hard because supply from the Philippines, a major producer of Nickel, is expected to be cut due to new government environmental regulations and planned audits.

Not all commodities were flying higher, though, the precious metal and safe-haven gold was down by 0.27% to $1,352.90 per troy ounce, likely because of the prevalence of risk appetite.

Major Currency Movers:

GBP – The pound got a bullish boost at the start of the session on easing political uncertainty in the U.K., but encountered fresh sellers when BOE Carney began his testimony, and especially after he hinted that more easing is a possibility. The pound was able to hold onto its gains until the end of the session, though.

GBP/USD was up by 70 pips (+0.54%) to 1.3156, GBP/JPY was up by 145 pips (+1.07%) to 136.69, GBP/CHF was up by 84 pips (+0.65%) to 1.2938

Comdolls – The pound may have been the most powerful currency of the session, but the prevalence of risk appetite coupled with a strong commodities rally allowed the comdolls (AUD, NZD, CAD) to give the safe-havens (JPY, USD, CHF) a royal smack-down.

AUD/USD was up by 33 pips (+0.44%) to 0.7632, AUD/JPY was up by 76 pips (+0.97%) to 79.28, AUD/CHF was up by 40 pips (+0.55%) to 0.7503

NZD/USD was up by 28 pips (+0.38%) to 0.7309, NZD/JPY was up by 67 pips (+0.89%) to 75.94, NZD/CHF was up by 35 pips (+0.49%) to 0.7188

USD/CAD was down by 41 pips (-0.32%) to 1.3031, CAD/JPY was up by 66 pips (+0.84%) to 79.71, CAD/CHF was up by 32 pips (+0.43%) to 0.7544

JPY – Another round of risk appetite fueled by expectations of more stimulus from Japan naturally meant another beat-down for the yen.

USD/JPY was up by 55 pips (+0.54%) to 103.89, EUR/JPY was up by 63 pips (+0.56%) to 115.24, CHF/JPY was up by 43 pips (+0.42%) to 105.65

Watch Out For:

  • 1:15 pm GMT: Federal Reserve Governor Daniel Tarullo will give a short speech
  • 1:35 pm GMT: St. Louis Fed President James Bullard is scheduled to speak
  • 2:00 pm GMT: U.S. JOLTS job openings (5.74M expected, 5.79M previous)
  • 2:00 pm GMT: U.S. wholesale inventories (0.2% expected, 0.6% previous)\
  • 10:45 pm GMT: New Zealand’s FPI (-0.5% previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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