London Session Forex Recap – July 20, 2016

  • German PPI m/m: 0.4% vs. 0.2% expected, 0.4% previous
  • German PPI y/y: -2.2% vs. -2.4% expected, -2.7% previous
  • Euro Zone current account: €30.8B vs. €24.9B expected, €36.4B previous
  • U.K. jobless rate: 4.9% vs. steady at 5.0% expected
  • U.K. claimant count change: 0.4K vs. 4.0K expected. 12.2 previous
  • U.K. average earning index (no bonus): 2.2% vs. 2.3% expected, 2.3% previous
  • U.K. average earning index: 2.3% as expected, 2.0% previous
  • Swiss ZEW economic sentiment: 5.9 vs. 19.4 previous

Risk appetite returned during today’s morning London session, so the safe-haven yen got whipped. The pound, meanwhile, got a double boost from upbeat jobs data and a report from the BOE.

Major Events/Reports:

Positive  U.K. jobs reportThe U.K.’s jobless rate in the three months to May ticked lower to 4.9%, beating expectations that it would hold steady at 5.0%. Even better, the current reading is the lowest since late 2005. Employment also jumped by 176K to 31.7 million, which is the largest gain since the three months to December 2015.

Earnings also grew at an annual pace of 2.3%, which is within expectations and faster than the 2.0% increase that was registered during the three months to April. However, this was due to a 5% increase in bonuses. If bonuses are excluded, then wages only grew by 2.2%, which is softer than the expected increase of 2.3%.

No signs of big bad Brexit effects? – The BOE released its Agents’ Summary of Business Conditions earlier during the session. This report “generally covers business conditions in the month preceding the EU referendum, but also provides a summary of intelligence gathered following the vote to leave the EU.”

There were many items being discussed but the most important one is this conclusion (emphasis mine):

“Following the EU referendum, business uncertainty had risen markedly. Many firms had only just begun to formulate new business strategies in response to the vote and, for the time being, were seeking to maintain ‘business as usual’. A majority of firms spoken with did not expect a near-term impact from the result on their investment or staff hiring plans. But around a third of contacts thought there would be some negative impact on those plans over the next twelve months. As yet, there was no clear evidence of a sharp general slowing in activity.”

Risk sentiment flips back to risk-on – Signs of risk-taking activity returned to Europe, with the pan-European FTSEurofirst 300 up by 0.74% to 1,342.04, the blue-chip Euro Stoxx 50 up by 1.02% to 2,963.00, the U.K.’s FTSE 100 up by 0.22% to 6,712.00, and the DAX up by 1.33% to 10,114.00.

The upbeat mood also kept U.S. equity futures supported, with the S&P 500 futures index up by 0.31% to 2,165.50 and the Nasdaq futures index up by 0.32% to 4,621.38. The safe-haven gold was out of luck, though, since it was down by 0.70% to $1,322.95 per troy ounce.

The overall risk-friendly environment was attributed to stronger-than-expected earnings from various tech companies, according to some market analysts.

Major Currency Movers:

GBP – The pound had a quiet start, but began charging higher when the jobs report came in mostly better-than-expected. Pound pairs then got another bullish volatility infusion when the BOE released its summary of business conditions, very likely because of the conclusion that “there was no clear evidence of a sharp general slowing in activity.”

GBP/USD was up by 88 pips (+0.68%) to 1.3172, GBP/JPY was up by 140 pips (+1.01%) to 140.28, GBP/CHF was up by 96 pips (+0.75%) to 1.3012

EUR – There were some upbeat items for the euro, but they were low to mid-tier at best. The euro seems to have been tracking the pound higher, though, ending up as the second-strongest currency of the morning London session.

EUR/USD was up by 23 pips (+0.21%) to 1.1011, EUR/JPY was up by 63 pips (+0.54%) to 117.27, EUR/CHF was up by 29 pips (+0.27%) to 1.0876

JPY – The risk-friendly environment was giving the safe-haven currencies a hard time, with the Japanese yen getting the worst of it.

USD/JPY was up by 36 pips (+0.34%) to 106.50, CHF/JPY was up by 28 pips (+0.26%) to 107.80, CAD/JPY was up by 18 pips (+0.23%) to 81.56

Watch Out For:

  • 1:00 pm GMT: Chinese CB leading index (0.2% previous)
  • 2:00 pm GMT: Euro Zone consumer confidence (-8 expected, -7 previous)
  • 2:30 pm GMT: U.S. crude oil inventories (-1.3M expected, -2.5M previous)
  • 10:45 pm GMT: New Zealand’s visitor arrivals (0.1% previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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