Article Highlights

  • German IFO business climate: 111.0 vs. 110.6 expected, 110.4 previous
  • German IFO expectations: 105.6 as expected vs. 105.5 previous
  • German IFO current conditions: 105.6 vs. 115.9 expected, 115.6 previous
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Not much on the docket for today’s morning London session, so forex traders turned mainly to risk sentiment for direction. And since risk aversion appeared to be the dominant sentiment, the safe-haven currencies had a little bullish party.

Major Events/Reports:

Signs of risk aversion? – The major European equity indices were sending a mixed signal during the session, with some slightly in the red while others were barely in the green.

  • The pan-European FTSEurofirst 300 was down by 0.09% to 1,422.48
  • The blue-chip Euro Stoxx 50 was up by 0.11% to 3,256.50
  • Germany’s DAX was down by 0.07% to 11,396.00
  • The U.K.’s FTSE 100 was up by 0.04% to 7,014.70

However, risk aversion seems more dominant, since market analysts noted that defensive or non-cyclical shares were being bought. For those who don’t know, non-cyclical shares generally provide stable earnings and their low correlation to the economic cycle makes them attractive as alternative to more traditional safe-haven investment, which is why they’re also called “defensive” shares.

Getting back on topic, market analysts also noted that banking shares got whupped, thanks to worries over the Monte dei Paschi’s precarious financial position. And this slide in banking shares, taken together with the demand for defensive shares apparently caused risk sentiment to appear mixed.

Bond-yields squashed – European and U.S. bonds yields fell during the morning London session.

  • French 10-year bond yield down by 2.58% tp 0.756%
  • German 10-year bond yield down by 6.69% to 0.293%
  • Italian 10-year bond yield down by 3.65% to 1.824%
  • U.K. 10-year bond yield down by 1.32% to 1.420%
  • U.S. 0-year bond yield down by 1.34% to 2.562%

Market analysts attributed this to profit-taking by investors ahead of the Christmas and New Year holidays. Although it’s also possible that we’re seeing actual safe-haven flows, given that defensive stocks were in demand during the session.

Major Market Movers:

JPY – The yen has been the greatest victim of surging bond yields during the past few weeks. And since yields got squashed today and there were signs of risk aversion, the yen ended up as the greatest benefactor, allowing it to dominate its peers.

USD/JPY was down by 11 pips (-0.10%) to 117.23, NZD/JPY was down by 50 pips (-0.61%) to 81.37, AUD/JPY was down by 45 pips (-0.54%) to 85.16

USD & CHF – The risk-off vibes also apparently fueled demand for the safe-haven Greenback and Swissy. The Greenback was able to win out against the Swissy, however, with USD/CHF up by 16 pips (+0.16%) to 1.0266.

Market analysts attributed the Greenback’s superior strength to continued expectations that Trump’s planned fiscal stimulus would cause inflation to rise faster. This could then prompt the Fed to hike faster than projected.

AUD/USD was down by 32 pips (-0.44%) to 0.7264, EUR/USD was down by 35 pips (-0.34%) to 1.0429, NZD/USD was down by 38 pips (-0.54%) to 0.6939

NZD/CHF was down by 27 pips (-0.38%) to 0.7124, EUR/CHF was down by 21 pips (-0.20%) to 1.0706, AUD/CHF was down by 22 pips (-0.29%) to 0.7458

GBP – The pound had the sorriest performance during the morning London session. And market analysts blamed this to renewed Brexit jitters thanks to comments made by officials over the weekend. Other than that, there weren’t really any catalysts.

GBP/USD was down by 94 pips (-0.75%) to 1.2392, GBP/JPY was down by 119 pips (-0.81%) to 145.30, GBP/CHF was down by 75 pips (-0.58%) to 1.2725

Watch Out For:

  • 1:30 pm GMT: CB’s Australian leading index (0.5% previous)
  • 2:45 pm GMT: Markit’s flash U.S. services PMI (55.2 expected, 54.6 previous)
  • 6:30 pm GMT: Fed Chair Janet Yellen has a speech
  • 9:45 pm GMT: New Zealand’s FPI (-0.8% previous)

See also:

Asian Session Recap

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Bonnie and Clyde, peanut butter and jelly, Kanye West and Kanye West. Some things just go well together.

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