U.S. Session Forex Recap – Feb. 25, 2016

  • U.S. flash services PMI down from 53.2 to 49.8 vs. 53.4 forecast
  • U.S. new home sales down from 544K to 494K vs. 522K forecast
  • U.S. crude oil inventories rose by 3.5 million barrels vs. 2.0 million estimate
  • New Zealand visitor arrivals rebound by 2.9% in Jan

Volatility was cranked up a few notches in the financial markets, leading forex pairs to make quick rallies and similarly quick reversals in the past few hours.

Major Events:

Weak U.S. economic data – Another day, another set of downbeat data! U.S. reports have been coming in mostly weaker than expected these days, and the latest flash services PMI and new home sales figures were no exception.

The flash services PMI for February crashed to 49.8 – its lowest reading in over two years – to indicate industry contraction versus the forecast of 53.4. To top it off, the previous month’s reading was downgraded from 53.7 to 53.2, reflecting a slower pace of expansion than initially reported. New home sales slipped from 544K to 494K in January, lower than the projected 522K reading.

Oil prices up despite rising stockpiles – Based on the report from the Energy Information Administration, crude oil stockpiles rose by 3.5 million barrels, higher than the estimated increase of 2 million barrels and the previous gain of 2.1 million barrels. You’d think that a larger buildup in inventory might keep oversupply concerns in play and lead to another leg lower for crude oil, right? Nope!

As it turns out, forex market watchers had actually been bracing themselves for a much larger increase, especially since the API report released yesterday showed a buildup of 7.1 million barrels. WTI crude oil recovered to $32.17/barrel and Brent crude oil bounced to $34.41/barrel.

Risk appetite back on or dead-cat bounce? – U.S. markets were actually off to a weak start during the New York trading session, as equity indices slid lower after the open. However, investors suddenly turned those frowns upside down right around the release of the EIA oil inventories report and triggered a late market rally, allowing higher-yielding currencies to advance as well.

The Dow 30 index managed to close with a 0.32% gain, the S&P 500 index chalked up a 0.44% increase, and the Nasdaq locked in a 0.87% lead by the end of the session.

Major Currency Movers:

CAD – The Loonie was one of the strongest currencies for the day, taking advantage of the bounce in crude oil prices.

USD/CAD retreated from a high of 1.3827 to the support at 1.3700, CAD/JPY pulled up from a low of 80.36 to retest the broken support at 82.00, EUR/CAD dipped below the 1.5100 handle to a low of 1.5057, and GBP/CAD broke below the 1.9100 mark to a low of 1.9055.

JPY – Since the yen was the big winner when risk aversion was present in the past few days, it was forced to return a huge chunk of its gains when sentiment improved.

USD/JPY bounced off support at the 111.00 major psychological mark to a high of 112.21, EUR/JPY rallied off the 122.50 minor psychological level to a high of 123.55, GBP/JPY managed to squeeze out some gains until 156.00, and AUD/JPY popped up to a high of 80.79.

 

Watch Out For:

  • 12:30 am GMT: Australian private capital expenditure q/q (-3.1% expected, -9.2% previous)

See also:

Asian Session Recap

London Session Recap

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