Article Highlights

  • Swiss PPI m/m: 0.3% vs. 0.1% expected, 0.0% previous
  • U.K. CPI m/m: 0.1% vs. 0.3% expected, 0.4% previous
  • U.K. CPI y/y: 0.3% vs. 0.5% expected, 0.5% previous
  • U.K. core CPI y/y: 1.2% vs. 1.5% expected, 1.5% previous
  • U.K. HPI y/y: 9.0% vs. 7.9% expected, 7.6% previous
  • U.K. PPI input y/y: -6.5% vs. -6.7% expected, -6.1% previous
  • U.K. PPI output y/y: -0.7% vs. -0.8% expected, -0.9% previous
  • Euro Zone trade balance: €22.3B vs. €22.0B expected, €20.6B previous
  • U.S. CPI readings coming up
  • Dairy auction currently underway
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Risk aversion and commodities dictated forex price action for the most part during the morning London session, so the higher-yielding comdolls ended up getting bushwhacked by the safe-haven currencies, especially the Greenback.

Major Events/Reports:

U.K. CPI miss expectations – The U.K. printed its CPI readings earlier and they all missed expectations. The headline reading came in at 0.1% month-on-month (0.3% expected, 0.4% previous) and 0.3% year-on-year (0.5% expected, 0.5% previous) while the core reading posted a 1.2% year-on-year increase (1.5% expected, same as previous).

According to the CPI report, the slower year-on-year readings were due to falls in the price of air fares, clothing, vehicles, and the rent of social housing. The headline year-on-year reading slowed down from a 15-month of high while the core reading came off a 17-month high, which are rather disappointing.

Commodities retreat – Commodities were broadly in the red during the morning London session, with the base metal copper down by 0.38% to $2.081 per pound. Oil benchmarks were also now bleeding out, with U.S. crude oil down by 0.29% to $47.58 per barrel and Brent crude oil down by 0.71% to $48.62 per barrel. Even the safe-haven gold was down by 0.05% to $1,273.60 per troy ounce near the end of the session despite returning risk aversion.

Market analysts couldn’t pinpoint an apparent catalyst for the sudden and broad-based sentiment switch on commodities, but it’s possible that market players were just taking some delicious profits off the table.

Risk aversion creeping back in – European markets opened on an upbeat mood, but feeling of gloom and doom slowly spread through the market like a plague during the course of the morning London session.

The Euro Stoxx 50 was down by 0.10% to 2,948.50 while the DAX was down by 0.17% to 9,936.00. Both equity indices were in positive territory at the start of the session. The pan-European FTSEurofirst 300, meanwhile, was still up by 0.30% to 1,319.29, but it reached as high as 1,331.39 earlier. U.S. equity futures were also pushed into the red, with the S&P 500 futures down by 0.12% to 2,060.25 and Nasdaq futures down by 0.05% to 4,373.25.

Given that mining companies were giving European equity indices a boost earlier, it’s probably safe to say that the souring sentiment was due to the broad-based commodities retreat.

Major Currency Movers:

AUD & CAD – The Loonie and the Aussie were the two weakest currencies during the morning London session, with the Loonie being clearly the weakest between the two. The two higher-yielding comdolls likely got a double smack-down from the returning risk aversion and retreating commodity prices.

AUD/USD was down by 29 pips (-0.40%) to 0.7323, AUD/NZD was down by 13 pips (-0.13%) to 1.0770, AUD/JPY was down by 25 pips (-0.31%) to 80.15

AUD/CAD was up by 26 pips (+0.28%) to 0.9470, NZD/CAD was up by 36 pips (+0.41%) to 0.8791, EUR/CAD was up by 87 pips (+0.60%) to 1.4637

USD – All the safe-haven currencies (USD, JPY, CHF) were enjoying the risk-off environment, but it seems like the Greenback was the safe-haven of choice for most traders since the Greenback managed to trump its fellow safe-havens to end up as the one currency to rule them all (during the session at least).

USD/CAD was up by 88 pips (+0.69%) to 1.2931, USD/JPY was up by 11 pips (+0.10%) to 109.46, USD/CHF was up by 14 pips (+0.15%) to 0.9787

GBP – The pound got kicked lower across the board when the disappointing CPI readings were released, but pound pairs quickly found support and even managed to climb higher against the comdolls.

There were no clear catalysts for the lack of follow-through selling, but it’s possible that forex traders were already anticipating the disappointing readings since the BOE did say in its May Inflation Report that “CPI inflation probably fell back to 0.3% in April, as the contribution of airfares unwound.” The BOE also expected inflation to pick up during the course of the year to reach 0.9% by September and forex traders were probably more focused on that.

GBP/USD was down by 27 pips (-0.19%) to 1.4478, GBP/CHF was up by 6 pips (+0.04%) to 1.4169, GBP/AUD was up by 44 pips (+0.22%) to 1.9769

Watch Out For:

  • 12:30 pm GMT: Canadian manufacturing sales (-1.9% expected, -3.3% previous)
  • 12:30 pm GMT: U.S. building permits (1.14M expected, 1.09M previous)
  • 12:30 pm GMT: U.S. housing starts (1.13M expected, 1.09M previous)
  • 12:30 pm GMT: U.S. headline (0.3% expected, 0.1% previous) and (0.2% expected, 0.1% previous) core CPI readings
  • 1:15 pm GMT: U.S. capacity utilization (75.0% expected, 74.8% previous)
  • 1:15 pm GMT:U.S. industrial production (0.3% expected, -0.6% previous)
  • 10:45 pm GMT:New Zealand’s PPI input (0.3% expected, -1.2% previous)
  • 10:45 pm GMT:New Zealand’s PPI output (0.4% expected, -0.8% previous)
  • Dairy auction currently underway (1.4% previous); auction usually ends at around 2:00 pm GMT

See also:

Asian Session Forex Recap

U.S. Session Forex Recap

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