Article Highlights

  • German HICP m/m: no revision from 0.0% as expected
  • German HICP y/y: no revision from 0.7% as expected
  • Italian industrial production m/m: 0.0% vs. 0.3% expected, -0.8% previous
  • U.K. CPI m/m: 0.2% as expected vs. 0.1% previous
  • U.K. CPI y/y: 1.2% vs. 1.1% expected, 0.9% previous
  • U.K. core CPI y/y: 1.4% vs. 1.4 % expected, 1.2% previous
  • U.K. PPI input m/m: -1.1% vs. -0.5% expected, 4.5% previous
  • U.K. PPI output m/m: 0.0% vs. 0.2% expected, 0.7% previous
  • U.K. HPI: 6.9% vs. 7.3% expected, 7.0% previous
  • German ZEW economic sentiment: 13.8 vs. 14.2 expected, 138 previous
  • Euro Zone ZEW economic sentiment: 18.1 vs. 16.5 expected, 15.8 previous
  • Euro Zone employment change q/q: 0.2% vs. 0.3% expected, 0.4% previous
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Tight trading conditions persisted into today’s morning London session. However, the euro was clearly weaker across the board while the pound got bid broadly higher.

Major Events/Reports:

New Italian PM speaks – Paolo Gentiloni, the former Italian foreign minister, was chosen on Sunday to succeed outgoing PM Matteo Renzi. Well, Gentiloni was sworn in earlier. And with regard to the Italian banking crisis, he had this to say:

“I want to say very clearly that the government … is ready to intervene in order to guarantee the stability of banks and the savings of our citizens.”

Basically, the new PM confirmed the Monte dei Paschi rumors that I mentioned in yesterday’s London session recap.

U.K. CPI at 2-year highAccording to the U.K. Office for National Statistics (ONS), the U.K.’s CPI increased by 0.2% month-on-month in November. The increase is within expectations, but a tick higher than the previous month’s increase.

Year-on-year, CPI advanced by 1.2%, slightly faster than the expected 1.1% increase and much better than the previous month’s +0.9%. Not only that, November’s reading is the highest since October 2014’s +1.3%, which is great.

According to the CPI report:

“Rises in the prices of clothing, motor fuels and a variety of recreational and cultural goods and services, most notably data processing equipment, were the main contributors to the increase in the rate. These upward pressures were partially offset by falls in air and sea fares.”

With regard to the rise in motor fuel, the CPI report also had this to say:

“Fuel prices tend to reflect movements in oil prices and part of the increase in oil prices during 2016 to date can be explained by depreciation of sterling against the US dollar.”

Appetite for risk returns – Many of the major European equity indices opened lower. However, risk appetite made a comeback, so almost all of the major European equity indices were in positive territory by the end of the session.

  • The pan-European FTSEurofirst 300 was up by 0.64% to 1,407.58
  • The blue-chip Euro Stoxx 50 was up by 0.98% to 3,229.50
  • Germany’s DAX was up by 0.79% to 11,278.75
  • The U.K.’s FTSE 100 was up by 0.18% to 6,902.60

Even U.S. equity futures got a lift.

  • S&P 500 futures were up by 0.27% to 2,256.50
  • Nasdaq futures were up by 0.33% to 4,882.12

Market analysts point out that banking shares were surging, with Italian banks leading the way, which then improved overall risk sentiment. And the surge in banking shares, particularly of Italian banks, was attributed to positive updates on UniCredit’s restructuring program, as well as the rumors about Monte dei Paschi that I mentioned in yesterday’s London session recap. And as I discussed earlier, the new Italian PM’s statement validated the rumors.

Major Market Movers:

EUR – The euro slumped across the board right from the get-go. Aside from the turnaround in risk sentiment and the European equities rally, there was no apparent catalyst for the broad-based slide. And the only economic report at the time was Italy’s industrial production, but that’s only a low-tier report.

EUR/USD was down by 37 pips (-0.35%) to 1.0605, EUR/CHF was down by 47 pips (-0.44%) to 1.0736, EUR/GBP was down by 49 pips (-0.58%) to 0.8347

GBP – The pound was already showing signs of strength long before the morning London session even rolled around. And according to market analysts, this was due to finance minister Philip Hammond’s comments that were supportive of a transition period to soften the impact of Brexit.

Anyhow, the pound’s strength persisted when the morning London session finally came about. The pound then got another bullish injection when the U.K. released its CPI report. However, the CPI report didn’t seem to have a lot of sticking power since the pound’s price action diverged after that. The pound managed to hold onto its gains to finish as the best performing currency, though.

GBP/USD was up by 30 pips (+0.24%) to 1.2705, GBP/CAD was up by 23 pips (+0.14%) to 1.6668, GBP/JPY was up by 40 pips (+0.27%) to 146.50

NZD – The risk-on vibes likely stoked demand for the higher-yielding Kiwi, allowing it to become the session’s second strongest currency.

NZD/USD was up by 12 pips (+0.18%) to 0.7201, NZD/JPY was up by 17 pips (+0.21%) to 83.03, NZD/CAD was up by 7 pips (+0.08%) to 0.9448

Watch Out For:

  • 1:30 pm GMT: U.S. import price index (-0.4% expected, 0.5% previous)

See also:

Asian Session Recap

U.S. Session Recap

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