London Session Forex Recap – Sept. 13, 2016

  • German final HICP m/m: unchanged at -0.1% as expected
  • German final HICP y/y: unchanged at 0.3% as expected
  • Swiss PPI m/m: -0.3% vs. -0.2% expected, -0.1% previous
  • Swiss PPI y/y: -0.4% vs. -0.3% expected, -0.8% previous
  • U.K. CPI m/m: 0.3% vs. 0.4% expected, -0.1% previous
  • U.K. CPI y/y: 0.6% vs. 0.7% expected, 0.6% previous
  • U.K. core CPI y/y: 1.3% vs. 1.4% expected, 1.3% previous
  • U.K. HPI y/y: 8.3% vs. 8.5% expected, 9.7% previous
  • U.K. RPI y/y: 1.8% as expected, 1.9% previous
  • German ZEW economic sentiment: 0.5 vs. 2.8 expected, 0.5 previous
  • Euro Zone ZEW economic sentiment: 5.4 vs. 6.7 expected, 4.6 previous

The pound got torpedoed during the session, thanks to the miss in CPI readings. Meanwhile, the return of risk appetite weighed heavily on the safe-haven currencies, particularly the yen.

Major Events/Reports:

U.K. CPI miss expectationsThe U.K.’s headline CPI reading for August came in at 0.3% month-on-month, missing the market’s expectations of a 0.4% increase amid the weakened pound. But on a more upbeat note, the monthly reading was an improvement over the 0.1% slide back in July. And did I mention that the current reading is a five-month high?

On an annual basis, headline CPI increased by 0.6%, which is the same pace as last time and the highest reading since November 2014 to boot. It’s a tick lower than the expected 0.7% increase, though. Worse than that, it’s lower than the 0.8% increase that the BOE projected in its August Inflation Report. That last bit probably stoked expectations that the BOE will be easing further later this week since support for the pound collapsed.

Risk appetite finally returns – After bleeding out for three straight days, European equities finally rose again on the fourth day:

  • The pan-European FTSEurofirst 300 was up by 0.13% to 1,348.47
  • The blue-chip Euro Stoxx 50 was up by 0.28% to 3,020.00
  • The U.K.’s FTSE 100 was up by 0.20% to 6,714.60
  • The DAX was up by 0.54% to 10,491.30

Market analysts attributed the risk-on vibes to lower rate hike expectations after Fed Governor Lael Brainard’s cautious statements during yesterday’s U.S. session. Of course, Brainard has always been a cautious person, as Forex Gump pointed up in one of his write-ups.

Oil slumps hard – Oil benchmarks dropped pretty hard on reports that the International Energy Agency (IEA) changed its forecast that demand for oil will overtake supply by the end of the year. Instead, the IEA revised its forecast in its September report to say (emphasis mine):

“Our forecast in this month’s report suggests that this supply-demand dynamic may not change significantly in the coming months. As a result, supply will continue to outpace demand at least through the first half of next year.”

Oil benchmarks obviously didn’t like that very much:

  • U.S. WTI crude oil down by 2.9% to $45.23 per barrel
  • Brent blend crude oil down by 1.97% to $47.38 per barrel

Major Market Movers:

CAD – Oil benchmarks were in retreat during the morning London session, to the Loonie retreated as well. It held its own against the yen and the pound, though.

USD/CAD was up by 34 pips (+0.26%) to 1.3113, EUR/CAD was up by 36 pips (+0.25%) to 1.4730, NZD/CAD was up by 24 pips (+0.26%) to 0.9601

JPY – The return of risk appetite dampened demand for the safe-haven currencies (USD, JPY, CHF). The yen was particularly vulnerable, though, since it lost out to its fellow safe-havens. It should be noted, however, that the infamy of being the worst-performing currency of the session didn’t go to the yen.

USD/JPY was up by 41 pips (+0.40%) to 102.25, CHF/JPY was up by 45 pips (+0.43%) to 105.21, AUD/JPY was up by 29 pips (+0.38%) to 76.97

GBP – When the session opened, the pound showed signs of strength as it sailed through the forex seas. However, the poor pound got torpedoed and quickly sank when the U.K.’s CPI readings failed to meet expectations.

GBP/USD was down by 66 pips (-0.50%) to 1.3250, GBP/CHF was down by 67 pips (-0.52%) to 1.2877, GBP/NZD was down by 95 pips (-0.62%) to 1.8095

Watch Out For:

  • 6:00 pm GMT: U.S. Federal budget balance (-$107.0B expected, -$112.8B previous)
  • 10:45 pm GMT: New Zealand’s current account (-$0.30B expected, -$1.31B previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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