London Session Forex Recap – August 31, 2016

  • UBS Swiss consumption indicator: 1.32 vs. 1.21 previous
  • U.K. Nationwide HPI m/m: 0.6% vs. -0.2% expected, 0.5% previous
  • U.K. Nationwide HPI y/y: 5.6% vs. 4.9% expected, 5.2% previous
  • German retail sales m/m: 1.7% vs. 0.5% expected, -0.6% previous
  • French consumer spending m/m: -0.2% vs. 0.3% expected, -0.8% previous
  • Euro Zone flash HICP y/y: 0.2% vs. 0.3% expected, 0.2% previous
  • Euro Zone flash core HICP y/y: 0.8% vs. 0.9% expected, 0.9% previous
  • Euro Zone jobless rate: 10.1% vs. 10.0% expected, 10.1% previous

The pound was in demand again during today’s morning London session. Meanwhile, the prevalence of risk appetite buoyed the Aussie and the Kiwi while limiting demand for the safe-havens.

Major Events/Reports:

Euro Zone data miss expectations – The headline flash estimate for August HICP in the Euro Zone came in at 0.2% year-on-year, missing expectations of a 0.3% increase but matching the previous month’s reading. The core HICP reading, meanwhile, came in at 0.8%, also missing expectations that it will maintain last month’s 0.9% rate.

According to the details of the inflation report, the energy component was still a drag, albeit not as much when compared to the previous month (-5.7% vs. -6.7% previous). This helped to keep the headline reading steady at +0.2%. Another noteworthy thing is that the cost of services increased at a slower rate (+1.1% vs. +1.2% previous), which is why the core reading took a hit.

Aside from inflation data, the jobless rate for the Euro Zone as a whole was also revealed to have held steady at 10.1% in July, missing expectations that it would tick lower to 10.0%. But on a more upbeat note, 10.1% is the lowest reading since July 2011.

Looking at the jobless rates of the major Euro Zone economies, Germany had 4.2%, France had 10.3%, Italy had 11.4% and Spain had the worst at 19.6%. Only Greece surpassed Spain’s awful reading, coming in at 23.5%.

ECB’s Nouy speaksIn a statement earlier, ECB Supervisory Board Chair Daniele Nouy said that “It is becoming clear now that the low interest rate environment takes its toll and limits banks’ profits.” She also added that “Investors can no longer expect the same high return on equity as they received before the banking crisis, but they do need their returns to be adequate.”

Her comment on the negative effects of low rates didn’t seem to have an impact on euro pairs, though, since they were mixed for the session.

Moderate risk-taking – There were signs of moderate risk-taking during the session. Many European equity indices actually started on a low note, but most were flat or in positive territory near the end of the morning London session.

  • The pan-European FTSEurofirst 300 was up by 0.21% to 1,360.06
  • The blue-chip Euro Stoxx 50 was up by 0.50% to 3,048.50
  • The U.K.’s FTSE 100 opened lower but clawed its way up to close flat at 6,820.50
  • The DAX also opened lower but slowly climbed higher to close 0.1% lower at 10,655.00

The risk-on mood in Europe didn’t have a lot of effect on U.S. equity futures, though, since they were slightly up but essentially unchanged before the U.S. session opened.

  • The S&P 500 futures index was up by 0.02% to 2,175.75
  • The Nasdaq futures index was up by 0.04% to 4,777.88

Market analysts noted that banking stocks were leading the way on positive earnings reports and the possibility of a merger between Commerzbank and Deutsche Bank.

Major Currency Movers:

GBP – The pound reigned supreme once more, even though there weren’t any apparent catalysts for the pound. It’s possible that easing Brexit jitters are still stoking demand for the pound. Although it’s also possible that we’re just seeing some month-end flows.

GBP/USD was up by 45 pips (+0.34%) to 1.3133, GBP/CHF was up by 54 pips (+0.43%) to 1.2926, GBP/JPY was up by 45 pips (+0.33%) to 135.63

AUD & NZD – The higher-yielding Aussie & Kiwi did relatively well during the session, especially against the safe-havens, probably because of the prevalence of risk appetite.

AUD/USD was up by 17 pips (+0.22%) to 0.7517, AUD/JPY was up by 17 pips (+0.22%) to 77.64, AUD/CHF was up by 23 pips (+0.31%) to 0.7399

NZD/USD was up by 20 pips (+0.27%) to 0.7249, NZD/JPY was up by 20 pips (+0.28%) to 74.87, NZD/CHF was up by 26 pips (+0.37%) to 0.7135

Watch Out For:

  • 12:15 pm GMT: ADP employment report (175K expected, 179K previous)
  • 12:30 pm GMT: Canadian monthly GDP (0.4% expected, -0.6% previous)
  • 1:45 pm GMT: Chicago PMI (54.0 expected, 55.8 previous)
  • 2:00 pm GMT: U.S. pending home sales (0.7% expected, 0.2% previous)
  • 2:30 pm GMT: U.S. crude oil inventories (1.1M expected, 2.5M previous)

Asian Session Forex Recap

U.S. Session Forex Recap

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