Article Highlights

  • U.K. Nationwide HPI m/m: 0.2% vs. 0.0% expected, 0.8% previous
  • Swiss manufacturing PMI: 54.6 vs. 56.1 expected, 56.0 previous
  • Spanish manufacturing PMI: 55.6 vs. 55.1 expected, 55.3 previous
  • Italian manufacturing PMI: 53.0 vs. 53.3 expected, 53.2 previous
  • French final manufacturing PMI: 53.6 vs. unchanged at 53.4 expected
  • German final manufacturing PMI: 56.4 vs. unchanged at 56.5 expected
  • Euro Zone final manufacturing PMI: 55.2 vs. unchanged at 55.1 expected
  • U.K. manufacturing PMI: 55.9 as expected vs. 56.1 previous
  • British MPs expected to vote on Brexit Bill later
  • FOMC statement also later
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Price action was relatively muted during today’s morning London session, as forex traders waited for the FOMC statement. It’s wasn’t a complete snooze fest, though, since the Greenback resumed its broad-based slide while the pound got a bullish boost across the board.

Major Events/Reports:

Tight trading conditions – Volatility normally gets sapped ahead of top-tier events such as the upcoming FOMC statement. And today was apparently a very normal day, since price action was relatively more subdued, with many currency pairs trading sideways for the session.

U.K. manufacturing PMI – According to Markit’s manufacturing PMI report, the U.K.’s manufacturing PMI reading for January ticked lower from a 32-month high of 56.1 to 55.9. The slide was widely expected, however. And despite the slide, January’s reading is still the second best reading in 32 months. In addition, the U.K.’s manufacturing PMI has been above the 50.0 neutral mark for six consecutive months already.

According to commentary from Markit, the solid reading for January was due to production rising “at the fastest rate since May 2014.” However, January’s reading eased because “growth in new business moderated following the prior month’s high.” And additional commentary noted that new business growth weakened because new exports orders grew at a more modest pace.

With regard to prices, Markit noted that purchase costs rose “at the steepest rate in the quarter-century history of the survey.” And this was driven by “the weak sterling exchange rate and higher costs for commodities.” Manufacturers were able to pass on the higher costs, though, since output charges “rose to one of the greatest extents in the series history.” This will likely help kick U.K. inflation higher.

Risk appetite returns! – Risk appetite finally made a solid comeback in Europe, sending European equity indices higher.

  • The pan-European FTSEurofirst 300 was up by 0.99% to 1,435.42
  • The blue-chup Euro Stoxx 50 was up by 0.61% to 3,260.50
  • Germany’s DAX was also already up by 0.96% to 11,645.50
  • The U.K.’s FTSE 100 was up by 0.68% to 7,147.50

U.S. equity futures were also in positive territory.

  • S&P 500 futures were up by 0.20% to 2,279.00
  • Nasdaq futures were up by 0.50% to 5,138.38

Market analysts attributed the risk-on vibes during the session to upbeat earnings results for some of Europe’s blue-chips, which gave industrials and financials a boost, thereby improving overall market sentiment.

Theresa May speaksLast Wednesday, British PM Theresa May promised that she would release a white paper on her Brexit plans. By the way, a white paper is, according to the U.K. Parliament’s official glossary:

“White papers are policy documents produced by the Government that set out their proposals for future legislation. White Papers are often published as Command Papers and may include a draft version of a Bill that is being planned. This provides a basis for further consultation and discussion with interested or affected groups and allows final changes to be made before a Bill is formally presented to Parliament.”

Well, Theresa May announced late into the session that her government would finally be releasing the promised white paper tomorrow. Theresa May’s announcement confirms rumors from yesterday. However, the timing is pretty convenient, since British MPs are expected to vote on the Brexit Bill later. Anti-Brexit MPs would therefore be unable to argue against Theresa May’s plans.

Major Market Movers:

GBP – Other than GBP/USD, pound pairs started the morning London session on a weak footing. However, the pound got a bullish infusion across the board when the U.K.’s manufacturing PMI reading was released. You see, the reading was pretty solid and the second best reading in 32 months, despite the slide. Also, the reading means that 2017 is off on a good start. After that the pound steadily climbed higher before getting some sellers near the end, after Theresa May announced that her government would be releasing the promised white paper. The selling near the end was likely a “buy the rumor, sell the news” scenario.

GBP/USD was up by 51 pips (+0.40%) to 1.2622 with 1.2652 as session high, GBP/JPY was up by 30 pips (+0.21%) to 143.08 with 143.30 as session high, GBP/CHF was up by 37 pips (+0.30%) to 1.2496 with 1.2514 as session high

USD – Price action on the Greenback was rather muted. However, the Greenback clearly weakened across the board right from the get-go after recovering during the earlier session. There was no clear reason for the resumption of the Greenback’s broad-based weakness. Although it’s possible that the Trump-related themes were in play again.

USD/JPY was down by 23 pips (-0.23%) to 113.33, USD/CHF was down by 12 pips (-0.12%) to 0.9898, USD/CAD was down by 13 pips (-0.10%) to 1.3062

Watch Out For:

  • 1:15 pm GMT: ADP’s U.S. non-farm employment change (165k expected, 153K previous)
  • 2:30 pm GMT: RBC’s Canadian manufacturing PMI (51.8 previous)
  • 2:45 pm GMT: Markit’s final U.S. manufacturing PMI (no change from 55.1 expected)
  • 3:00 pm GMT: ISM’s U.S. manufacturing PMI (55.0 expected, 54.7 previous)
  • 3:00 pm GMT: U.S. construction spending (0.2% expected, 0.9% previous)
  • 3:30 pm GMT: U.S. crude oil inventories (2.6M expected, 2.8M previous)
  • 7:00 pm GMT: British MPs expected to vote on Brexit Bill (favorable vote expected)
  • 7:00 pm GMT: FOMC rate decision and statement (Fed Funds target range unchanged at 0.50%-0.75% expected)

See also:

Asian Session Recap 
U.S. Session Recap

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