London Session Forex Recap – July 18, 2016

Today’s a Monday and the forex calendar for the session was practically empty, so price action was rather tight during today’s morning London session. There was good two-way action on pound pairs, though.

Major Events/Reports:

MPC Weale Speaks – External BOE MPC Member Martin Weale delivered a rather lengthy speech earlier today. And one statement worth noting is that in his personal view, “For there to be a case for easing policy I will need to expect weakness in output to be large enough more than to compensate for any overshoot in inflation on the assumption that policy is unchanged in the near term,” which means that Weale is not completely sold on further easing moves by August.

Weale  also said that “In contrast to the experience of 2008, I do not have any sense that either consumers or businesses are panic-struck and, as I observed, there have been no material signs of financial panic,” so there seems to be no pressing need to act by August or try to reassure people.

ECB Lautenschläger spricht – In an earlier interview, ECB Executive Board Member and ECB Supervisory Board Vice-Chair Sabine Lautenschläger was asked how Brexit will affect the Spanish and EU banking sectors, to which she replied that “there have been no funding, liquidity or operational problems” in EU banks under the ECB’s Single Supervisory Mechanism (SSM).

She added, however, that “we are witnessing a new wave of risk aversion affecting share prices of banks not exclusively linked to banks with relevant exposure or operations in UK. This risk aversion might partly be linked to concerns about the future profitability of some banks.”

And when she was asked about the Italian Banking Crisis and whether Italy is the most serious risk to financial stability in Europe, she replied by first saying that Europe’s banking system is resilient and has more capital that also happens to be of better quality. She then warned that “There are of course unresolved issues and we might be seeing a contagion effect on banks’ share prices,” but she added that such a contagion effect “could be an overreaction.”

Cautious risk-taking – There were some signs of risk appetite during the morning London session, since the pan-European FTSEurofirst 300 was up by 0.13% to 1,337.41, the U.K.’s FTSE 100 was up by 0.36% to 6,693.00, and the DAX was up by 0.07% to 10,073.50.

U.S. equity futures were also in positive territory, with the S&P 500 futures index up by 0.20% to 2,157.00 and the Nasdaq futures index up by 0.12% to 4,584.75. The safe-haven gold, meanwhile, was down by 0.20% to $1,324.75 per troy ounce.

Market analysts attributed the overall risk-on mood to relief after a coup attempt was crushed in Turkey.

SNB sight deposits increase slightly – The SNB issued a press release during the session, and it showed that the sight deposits of domestic banks that are deposited at the SNB climbed from CHF 434,058 million to CHF 434,701 million for the week ending on July 15, which is a sign that the SNB may have intervened in the markets (*cough* market manipulation *cough*), since sight deposits of domestic banks form part of the monetary base. The climb is slower than usual, though.

Major Currency Movers:

GBP – Like most other currency pairs, pound pairs were trading sideways during the morning London session, but there was good two-way action to be had that would have satisfied most day traders.

The pound initially climbed higher across the board, likely because of the risk-on mood and MPC Weale’s personal view that further easing by August may not be needed. The pound then tumbled across the board, even though there were no catalysts, before getting some buyers near the end yet again.

GBP/USD climbed to a high of 1.3291 and then dropped to a low of 1.3218 before climbing back up to close 26 pips higher (+0.27%) at 1.3258, GBP/CHF climbed to a high of 1.3063 and then dropped to a low of 1.2996 before climbing back up to close 29 pips higher (+0.22%) at 1.3033, GBP/JPY climbed to a high of 140.39 and then dropped to a low of 139.53 before climbing back up to close 50 pips higher (+0.36%) at 140.18

Watch Out For:

• 12:30 pm GMT: Canadian foreign securities purchases ($15.39B expected, $15.52B previous)
• 2:00 pm GMT: U.S. NAHB builders survey (unchanged at 60.0 expected)
• 2:30 pm GMT: Australia’s CB Leading index (0.5% previous)

See also:

Asian Session Forex Recap

Last Week’s Top Movers

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