Article Highlights

  • German PPI m/m: -0.7% vs. -0.3% expected, -1.0% previous
  • German PPI y/y: -2.4% vs. -2.0% expected, -2.3% previous
  • U.K. retail sales m/m: 2.3% vs. 0.8% expected, -1.3% previous
  • U.K. retail sales y/y: 2.3% vs. 0.7% expected, -1.3% previous
  • U.K. core retail sales m/m: 5.2% vs. 3.6% expected, 2.3% previous
  • U.K. core retail sales y/y: 5.0% vs. 3.4% expected, 1.8% previous
  • U.K. public sector net borrowing: -£11.8B vs. -£13.8B expected, 7.5B previous
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Price action was rather choppy and relatively subdued during today’s morning London forex session, but pound pairs were moving uniformly in one direction – to the downside.

Major Events:

Positive U.K. reports – Whether it’s the headline or the core reading, year-on-year or month-on-month, the readings for the amount spent in the retail sales industry during the January period were all printing better-than-expected increases, which is just beautiful. Not only that, the retail sales report even shows that the retail sales volume increased by 2.3% month-on-month and 5.2% year-on-year.

Moving on, the U.K. reported a budget surplus during the January period. Even better, self-assessed income tax receipts increased by £0.2B to £12.4B, which is good news since it implies higher earnings. Unfortunately, these reports weren’t able to attract enough buyers for the pound.

Day 1 of the E.U. Summit was a dud, Day 2 in focus – Despite all that upbeat rhetoric from British Prime Minister David Cameron and top E.U. officials, the first day of the meeting turned out to be a no-go.

If you’re just tuning-in and have no idea what I’m talking about, then ya better get up to speed by reading Forex Gump’s Primer and Update on The Brexit Saga. The gist of it, though, is that Cameron and other EU leaders are negotiating on a deal regarding the United Kingdom’s relationship to the rest of the E.U. in the hopes that the deal would be enough to skew the vote against a potential Brexit.

And with Day 2 of the summit coming up, rhetoric from E.U. leaders were no longer as upbeat as yesterday. German Chancellor Angela Merkel, for example, said earlier that “It became clear that agreement will not be easy for many, but that the will is there.”

Oil creeps lower – Oil benchmarks extended their losses during the morning London session. Most market analysts attributed this to oversupply concerns due to the record build-up in oil inventories that I highlighted in earlier session recaps, as well as Iranian Oil Minister Bijan Zanganeh’s lack of commitment to the oil output freeze deal and Saudi Arabia’s statement that it will not cut back on oil production.

U.S. crude oil was down by 1.97% to $32.28 per barrel while Brent crude oil was down by 1.93% to $33.62 per barrel during the morning London session.

Signs of risk aversion – The European session has been dominated by risk appetite for most of the trading week, but signs of modest risk aversion were finally sighted during today’s morning London session. Market analysts say that this was likely due to the renewed fall in oil prices as well as a spillover effect from the earlier Asian session that saw the Nikkei close 1.4% lower to 15,967.17 for the day. Of course, it’s also possible that we’re just seeing some profit-taking. It’s the end of the week after all.

The pan-European FTSEurofirst 300 was down by 0.94% to 1,281.82 while the DAX was down by 1.14% to 9,355.50 during the morning London session. U.S. equity futures were also pushed into the red after printing gains earlier, with the S&P 500 futures down by 0.46% to 1,907.75 and the Nasdaq futures down by 0.55% to 4,132.12. As for gold, the risk-off sentiment sent buyers flocking, pushing it 0.43% higher to $1,231.60 per troy ounce during the morning London session.

Major Currency Movers:

GBP – The pound was the only real mover during the morning London session since the forex price action of other currencies were either too choppy or too mixed. Anyhow, pound strengthened across the board at the start of the forex session, likely on speculation that the economic reports for the U.K. would be awesome. However, when the reports finally came out, the pound weakened across the board, which reinforces the probability that the earlier up move was due to preemptive positioning.

Pound pairs just sank ever lower after that. The risk-off sentiment was likely bad for the higher-yielding pound, but I think evaporating confidence on a Brexit deal had more weight since the risk-off sentiment didn’t seem to affect the higher-yielding comdolls as much.

GBP/USD was down by 48 pips (-0.34%) to 1.4262 with 1.4334 as session high, GBP/CHF was down by 47 pips (-0.34%) to 1.4155 with 1.4264 as session high, GBP/NZD was down by 58 pips (-0.27%) to 2.1556 with 2.1673 as session high

Watch Out For:

  • 1:30 pm GMT: U.S. headline (-0.1% expected, -0.1% previous) and core (0.2% expected, 0.1% previous) CPI readings
  • 1:30 pm GMT: Canadian headline (0.0% expected, -0.5% previous) and core (0.2% expected, -0.4% previous) CPI readings
  • 1:30 pm GMT: Canadian headline (-0.7% expected, 1.7% previous) and core (-0.5% expected, 1.1% previous) retail sales readings
  • 2:30 pm GMT: U.K. CB leading index (0.3% previous)
  • 3:00 pm GMT: Euro Zone consumer sentiment (-6.6 expected, -6.3 previous)

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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