London Session Forex Recap – July 21, 2016

  • Swiss trade balance: CHF 3.55B vs. CHF 3.79B expected, CHF 3.78B previous
  • French INSEE manufacturing confidence: 103 vs. 101 expected, 102 previous
  • U.K. retail sales m/m: -0.9% vs. -0.6 expected, 0.9% previous
  • U.K. retail sales y/y: 4.3% vs. 5.0% expected, 5.7% previous
  • U.K. core retail sales y/y: 3.9% vs. 4.8% expected, 5.2% previous
  • U.K. public sector net borrowing: £7.3B vs. £9.3B expected, £9.4B previous
  • ECB maintains refinancing rate at 0.00% as expected
  • ECB maintains marginal lending rate at 0.25% as expected
  • ECB maintains deposit rate at -0.40% as expected
  • ECB maintains QE program at €80B as expected
  • ECB press conference coming up; watch it live here

The pound got slapped lower due to a poor retail sales report, dragging the euro lower with it, since the ECB decided to keep its powder dry for now. The euro’s fortunes may change depending on what ECB Draghi has to say in the presser for later, though. Meanwhile, yen pairs went on a roller coaster ride, thanks to some BOJ-related shenanigans.

Major Events/Reports:

Poor U.K. retail sales – U.K. retail sales volume contracted by 0.9% month-on-month in June, faster than the expected 0.6% contraction and a disappointment when compared to the 0.9% increase printed in May. On an annual basis, retail sales volume expanded by 3.4%, which is way below the expected 5.0% expansion, and a significant slump when compared to the previous month’s 5.7% annual expansion.

Even worse, the core reading also took a hit, growing only by 3.9% (4.8% expected, 5.2% previous). And that’s not the end of it, since average store prices also fell by 2.5% year-on-year, which is not good news for inflation.

According to commentary from the retail sales report, contracting sales volume from textile, clothing, and footwear stores were a drag on both the monthly and annual reading. And the “decline in sales in the fashion categories, especially in women’s fashion and footwear” was due to “one of the wettest starts to a UK summer since records began,” according to the retail sales report, while citing the British Retail Consortium.

BOJ-related shenanigans – Just as the morning London session rolled in, rumors began to circulate that BOJ officials were not too committed on further monetary stimulus, according to unnamed people who are “familiar with the discussions.”

And later, as if by magic or an incredible coincidence, the BBC aired a recorded interview of BOJ Shogun Kuroda saying that there is “no need and no possibility for helicopter money,” which appears to have confirmed the earlier rumors.

However, Reuters later came out with a report saying that the interview aired by the BBC was conducted in mid-June, which was relatively long ago, and more importantly, also before Japanese PM Shinzo Abe announced his planned economic stimulus or expectations began to spread that the BOJ will be implementing some form of the so-called “helicopter money.”

ECB monetary policy decision – The ECB decided to maintain its monetary policy, but added a statement that “the The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.”

The decision to hold back and hints of dovishness were pretty much expected by the market, though, so forex traders are now waiting for what Draghi and company have to say in the upcoming ECB press conference. You can watch the ECB press conference live here.

Risk aversion returns – Risk sentiment has been switching back and forth throughout the week, at least during the morning London session. This time, risk sentiment flipped back to risk-off after yesterday’s risk-friendly session.

The pan-European FTSEurofirst 300 was down by 0.30% to 1,341.14, the blue-chip Euro Stoxx 50 was down by 0.22% to 2,962.00, the U.K.’s FTSE 100 was down by 0.42% to 6,701.00, and the DAX was down by 0.07% to 10,136.00.

Market analysts blamed the moderate aversion to risk during the session to security concerns, which, together with poor earnings reports, weighed down on the shares of airline companies.

Major Currency Movers:

GBP – Pound pairs were mixed at the start, but noticeably began being bombarded by sell orders when the U.K. retail sales report came out, causing the pound to end up as the weakest currency of the session.

GBP/USD was down by 86 pips (-0.65%) to 1.3173, GBP/AUD was down by 102 pips (-0.58%) to 1.7598, GBP/CHF was down by 60 pips (-0.46%) to 1.3008

EUR – Not much on the forex calendar for the euro and the ECB was widely expected to hold fire for now, so the euro ended up following the pound lower as the second-weakest currency of the morning London session.

EUR/USD was down by 25 pips (-0.23%) to 1.1012, EUR/JPY was down by 127 pips (-1.08%) to 117.03, EUR/CAD was down by 26 pips (-0.18%) to 1.4372

JPY – The yen dominated all its forex rivals during the session, but more interestingly, the yen’s price action was a roller coaster ride, thanks to the BOJ-related shenanigans I talked about earlier.

The yen started out strong on the get-go, thanks to those rumors about BOJ officials being hesitant on further monetary stimulus. The yen’s then got another bullish boost when BOJ Kuroda’s BBC interview was aired, only to retreat later when word got out that the interview was conducted in mid-June.

The yen was able to hold onto its gains, though, and the risk-off vibes also probably helped, which is why the yen was the one currency to rule them all (at least during the morning London session).

USD/JPY was down by 90 pips (-0.84%) to 106.28 with 105.42 as session low, CHF/JPY was down by 111 pips (-1.03%) to 107.63 with 106.83 as session low, GBP/JPY was down by 210 pips (-1.48%) to 140.03 with 139.08  as session low

Watch Out For:

  • 12:30 pm GMT: ECB press conference; watch it live here
  • 12:30 pm GMT: Canadian wholesale sales (0.2% expected, 0.1% previous)
  • 12:30 pm GMT: U.S. initial jobless claims (271K expected, 254K previous)
  • 12:30 pm GMT: U.S. Philadelphia Fed survey (4.8 expected, 4.7 previous)
  • 1:00 pm GMT: U.S. FHFA HPI (0.4% expected, 0.2% previous)
  • 2:00 pm GMT: U.S. CB leading indicator (0.2% expected, -0.2% previous)
  • 2:00 pm GMT: U.S. existing home sales (5.48M expected, 5.53M previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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