London Session Forex Recap – Nov. 18, 2016

  • German PPI m/m: 0.7% vs. 0.2% expected, -0.2% previous
  • German PPI y/y: -0.4% vs. -0.9% expected, -1.4% previous
  • Euro Zone current account: €25.3B vs. €31.3B expected, €29.1B previous

Another bout of risk aversion sent forex traders scurrying to the safe-haven yen. The pound, meanwhile, plunged near the end, even though there were no apparent catalysts.

Major Events/Reports:

ECB’s Draghi speaks – ECB Overlord Mario Draghi delivered a speech at the European Banking Congress in Frankfurt earlier. Draghi first praised the recovery in the Euro Zone before warning that “geopolitical risks remain prevalent.” Moreover, Draghi also warned that there are “three factors that warrant caution.” And according to Draghi, these three factors are:

  • the profitability of euro area banks
  • the relative weakness of inflation dynamics
  • the dependence of the recovery on accommodative monetary policy

Given the three factors above, Draghi concluded as follows (emphasis mine):

“So even if there are many encouraging trends in the euro area economy, the recovery remains highly reliant on a constellation of financing conditions that, in turn, depend on continued monetary support. The ECB will continue to act, as warranted, by using all the instruments available within our mandate to secure a sustained convergence of inflation towards a level below, but close to 2%.”

We also have to recognise that we operate under a still significant degree of uncertainty. Whether the economic recovery becomes more solid, and how quickly inflation dynamics become more self-sustained, depends not just on the current monetary policy stance, but also on other policies, as I have discussed on several other occasions. Restoring a sense of direction – and therefore confidence – would be the simplest and yet most powerful way to deliver economic stimulus.”

The main takeaway here is that Draghi seems to be in favor of extending QE beyond the March 2017 deadline. This is in line with most of the other ECB officials, as revealed in the minutes of the ECB’s October monetary policy meeting.

Fed Bullard speaks (again) – After telling markets how hawkish he was back on Wednesday, St. Louis Fed President James Bullard decided to do so again today. This time, Bullard said that:

“Markets are currently putting a high probability on a December move by the FOMC. I’m leaning towards supporting that.”

Commodities sink, but oil floatsMost commodities were in retreat during the morning London session. Oil was clearly and noticeably an exception, though.

Precious metals got the boot, even though there was risk aversion.

  • Gold was down by 0.49% to $11,210.95 per troy ounce
  • Silver was down by 1.09% to $16.590 per troy ounce

Base metals, meanwhile, got kicked lower.

  • Copper was down by 0.56% to $2.477 per pound
  • Nickel was down by 1.01% to $11,040.00 per dry metric ton

Oil benchmarks went against the bearish tide, as mentioned earlier.

  • U.S. crude oil was up by 0.59% to $45.69 per barrel
  • Brent crude oil was up by 0.67% to $46.80 per barrel

The broad-based sell-off in commodities was likely due to continued Greenback strength, with the U.S. dollar index up by 0.11% to 101.11 for the day.

Oil managed to gain ground, however, probably because of reports floating around that OPEC offered Iran a concession that it can limit its oil output at 3.92 million barrels per day. This is close to the 4.0-4.2 million that Iran wanted. Iran hasn’t replied to the proposal yet. However, this turn of events likely fueled speculation that OPEC is getting close to sealing a deal.

Another bout risk aversion – Europe was hit with another wave of risk aversion during today’s morning London session, causing most of the major European equity indices to slip into the red.

  • The pan-European FTSEurofirst 300 was down by 0.51% to 1,338.50
  • The blue-chip Euro Stoxx 50 was down by 0.56% to 3,022.00
  • Germany’s DAX was down by 0.16% to 10,668.50

Market analysts attributed the aversion to risk to the broad-based commodities slide, which dragged down mining shares. The fall in mining shares, in turn, soured overall risk sentiment.

Major Market Movers:

JPY – The prevalence of risk aversion likely sent forex traders scurrying towards the safe-haven yen. As a result, the yen ended up as the strongest currency of the session.

USD/JPY was down by 61 pips (-0.56%) to 110.08, AUD/JPY was down by 33 pips (-0.41%) to 81.39, GBP/JPY was down by 108 pips (-0.79%) to 136.16

GBP – Pound pairs were trading sideways for most of the session. However, the pound suddenly, broadly, and mysteriously plunged near the end.

GBP/USD was down by 30 pips (-0.24%) to 1.2369, GBP/CHF was down by 70 pips (-0.57%) to 1.2459, GBP/CAD was down by 91 pips (-0.54%) to 1.6701

Watch Out For:

  • 1:30 pm GMT: Headline (0.2% expected, 0.1% previous) and core (0.3% expected, 0.2% previous) readings for Canada’s CPI
  • 2:30 pm GMT: New York Fed President William Dudley will give a speech
  • 2:30 pm GMT: Kansas City Fed President Esther L. George has a speech
  • 3:00 pm GMT: U.S. CB leading indicator (0.1% expected, 0.2% previous)

See also:

Asian Session Recap

U.S. Session Recap

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