London Session Forex Recap – August 2, 2016

  • Australian commodity prices y/y: -2.0% vs. -10.0% previous
  • Spanish unemployment change: -84.0K vs. -70.0K expected, -124.3K previous
  • Swiss retail sales y/y: -3.9% vs. -2.0% expected, -1.7% previous
  • Swiss manufacturing PMI: 50.1 vs. 51.9 expected, 51.6 previous
  • U.K. construction PMI: 45.9 vs. 44.0 expected, 46.0 previous
  • Euro Zone PPI m/m: 0.7% vs. 0.4% expected, 0.6% previous

Risk aversion was the name of the game, so the safe-haven yen was in demand. Rallying commodities allowed some comdolls to just shrug off the gloomy risk sentiment, though.

Major Events/Reports:

U.K. construction PMI – Markit released its July construction PMI reading earlier. And while the reading came in at 45.9, which is better than the 44.0 consensus, it’s still worse than the previous 46.0 and the lowest reading since June 2009 to boot.

Commentary from the PMI report noted that weakness was broad-based, but commercial construction got slammed the hardest. The future also seems bleak since new orders fell to multi-year lows. Further commentary from the report cited “economic uncertainty following the EU referendum” as the most likely reason for the slowdown in construction activity.

Fed Kaplan speaks some more – In contrast to his rather hawkish comments yesterday, Dallas Fed President Robert Kaplan sounded a bit more dovish earlier today. This time, he said that the Fed should only raise rates in a gradual and patient manner.

In addition, Kaplan said that he’s “closely monitoring how slowing growth, high levels of overcapacity and high levels of debt to GDP in major economies outside the U.S. might be impacting economic conditions in the U.S.” And while Kaplan still favors a rate hike, he also discussed using negative rates in the U.S., although he did stress that he was against it.

Japan’s fiscal plan approved – The Japanese government announced the approval of a ‎‎¥13.5 trillion fiscal measure earlier as part of Japanese PM Shinzo Abe’s massive ‎‎¥28.1 trillion economic stimulus package. However, only ‎‎¥7.5 trillion is allocated for new spending within the year. Moreover, the announcement didn’t really have a lot of shock value since Abe already announced it last week.

Another round of risk aversion – Risk aversion persisted during the second morning London session of the week, with the pan-European FTSEurofirst 300 down by 1.03% to 1,325.35, the blue-chip Euro Stoxx 50 down by 1.69% to 2,920.50, the U.K.’s FTSE 100 down by 0.41% to 6,666.70, and the DAX down by 1.35% to 10,191.50.

U.S. equity futures were also feeling the pain, with the S&P 500 futures index down by 0.27% to 2,158.75 and the Nasdaq futures index down by 0.19% to 4,735.62.

Market analysts noted that the gloomy risk sentiment was due to poor earnings reports and another slide in banking shares.

Commodities fly – The gloomy mood may have dampened demand for equities, but it couldn’t hold commodities down. Precious metals were up, with gold up by 0.34% to $1,364.25 per troy ounce while silver was up by 1.14% to $20.733 per troy ounce.

Base metals were also well in the green with copper up by 0.52% to $2.211 per pound and nickel up by 1.05% to $10,842.50 per dry metric ton. As for oil benchmarks, they were in positive territory as well, with U.S. crude oil up by 1.22% to $40.55 per barrel and Brent blend crude oil up by 1.59% to $42.81 per barrel.

Market analysts couldn’t pinpoint the reason for the broad-based rally. But it’s possible that the Greenback’s recent retreat has made commodities more attractive.

Major Currency Movers:

JPY – The risk-off vibes and lack of shock value from the Japanese government’s fiscal measure announcement funneled demand towards the safe-haven yen.

USD/JPY was down by 60 pips (-0.60%) to 101.68, CHF/JPY was down by 50 pips (-0.47%) to 105.24, EUR/JPY was down by 57 pips (-0.51%) to 113.82

CAD & AUD – The Aussie and the Loonie managed to shrug off the prevalence of risk aversion during the morning London session, thanks to the broad-based commodities rally.

AUD/USD was up by 51 pips (+0.68%) to 0.7597, AUD/CHF was up by 40 pips (+0.54%) to 0.7341, AUD/NZD was up by 71 pips (+0.70%) to 1.0538

USD/CAD was down by 54 pips (-0.41%) to 1.3057, EUR/CAD was down by 45 pips (-0.31%) to 1.4616, GBP/CAD was down by 32 pips (-0.19%) to 1.7292

USD – The Greenback was falling back against all its forex rivals, with the exception of the Kiwi. There was no clear catalyst, but it’s possible the Fed Kaplan’s somewhat dovish statements were weighing down on the Greenback.

EUR/USD was up by 11 pips (+0.10%) to 1.1193, GBP/USD was up by 33 pips (+0.23%) to 1.3243, USD/CHF was down by 13 pips (-0.14%) to 0.9660

NZD – The Kiwi was the weakest currency of the morning London session. There was no apparent reason for the weakness, however. Moreover, the Kiwi’s weakness was a stark contrast to the strength of the other comdolls.

NZD/USD was down by 10 pips (-0.15%) to 0.7208, NZD/JPY was down by 45 pips (-0.62%) to 73.31, NZD/CAD was down by 39 pips (-0.41%) to 0.9415

Watch Out For:

  • 12:30 pm GMT: U.S. personal income (0.3% expected, 0.2% previous)
  • 12:30 pm GMT: U.S. personal spending (0.3% expected, 0.4% previous)
  • 12:30 pm GMT: U.S. core PCE price index (0.1% expected, 0.2% previous)
  • 1:30 pm GMT: Canada’s RBC manufacturing PMI (51.8 previous)
  • 10:45 pm GMT: New Zealand’s labor cost index (0.4% expected, same as previous)
  • 11:01 pm GMT: U.K. BRC shop price index (-2.0% previous)
  • Dairy auction currently underway (0.0% previous); auction usually ends at around 2:00 pm GMT

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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