Morning European Session Recap
- UK Retail Sales disappoints: -0.7% vs. 0.6% previous
- European GDP (1st est.) inline with forecasts at 0.1%, but lower than the previous read of 0.3%.
The Greenback rally continued throughout the morning European session as we saw weakness from both the UK and Europe. The Dollar regained most of its losses to the majors from yesterday’s session.
The most notable economic event was the weakness in UK retail sales, which caused a brief spike lower in Cable to break 1.6000. Fortunately for sterling bulls, that was a short-lived spike as the pair has now recovered and we’re now see broad GBP strength across the majors.
The other price action of note is the broad yen weakness, especially USD/JPY hitting–and briefly breaking–the 100.00 handle. Whether or not the yen sell off will continue may depend on the US morning session events.
Coming up from the US, we have the trade balance report and initial clams, both forecasted to be better than the previous read. We also have the Canadian trade balance report to possibly spark volatility in the Loonie, with forecasts to be slightly better than the previous read as well.
The main event for the morning US session though, is the testimony Janet Yellen (most likely the next Federal Reserve Chairman) to the US Senate Banking Committee. Traders will closely watch the unscripted question and answer section for clues on future monetary policy. This upcoming session has the potential to be a wild one.
Asia Session Recap
- Japan Industrial production (Final): 1.3% vs. 1.5% previous
- French preliminary GDP (quarterly) comes in weak at -0.1% vs 0.5% previous.
- German preliminary GDP (quarterly) comes inline with expectations at 0.3%. Lower than the 0.7% previous read.
The Asia session was much quieter than Wednesday’s US session, but we did see a bit of give back on the weak USD move yesterday. This was probably due to the weak data that we got from Japan and Europe (highlighted above) sparking some profit taking and/or risk aversion flows. Also, the yen is taking a hit against the majors (most breaking the previous week highs), with GBP/JPY as the most notable move (50 – 60 pip rally) thanks to the BOE comments mentioned earlier.
We’ve got the European session coming up quick, loaded with mostly tier 2 and tier 3 events, but we do have a tier 1 event in the form of the UK retail sales report that should spark short-term volatility, especially if the actual numbers contradict recent positive data for the UK. Be aware of all upcoming data releases by checking out our forex calendar!
U.S. Session Recap
- Janet Yellen’s comments on stimulus hurts the Greenback.
- NZ retail sales data comes in weaker-than-expected: 0.3% vs. 0.9% forecast.
- Japan’s preliminary GDP reading better-than-expected: 0.5% vs. 0.4% forecast
Traders closed out Wednesday’s trading session by selling US Dollars after the Federal Reserve chairman-to-be, Janet Yellen, commented that US employment and economic strength were “far short of their potential.” She also stated that inflation is expected to stay below the Fed’s 2% goal. This implies that the Fed would like to see more economic improvement and rise in prices before going into Taper mode.
As a result, the greenback to it to the chin from all of the major currencies, especially against the comdolls. Broad USD weakness was especially apparent in NZD/USD after we got weaker-than-expected retail sales data from New Zealand that saw a negative number in the core read (-0.1% vs. 1.4% forecast), but a continued rally in the pair to break above .8300. The greenback also felt the pain against the yen after Japan surprised the markets with a better-than-expected read on their preliminary quarterly GDP number. And finally, Cable bulls were a big winner with the combined catalyst of BOE Governor Carney’s comments on a possible rise in rates sooner than expected; GBP/USD broke above the 1.60 handle for more than 100 pips on the day.
Up ahead we have more data from Japan in the form of Industrial Production and Capacity Utilization data. Combined with the positive Japanese prelim GDP data, we may see a sentiment shift in the Nikkei and the yen. And before the London open, preliminary GDP reports for Germany and France will be on deck, so be on the look out for possible early volatility in European currencies.
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Head on to Big Pippin’s Daily Chart Art for some pip-locking technical setups!