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The Aussie and the Kiwi extended their gains from the earlier session and are now the best-performing currencies of the day (so far). And Aussie and Kiwi bulls can still thank commodities for that, since another round of rising commodity prices apparently allowed the Aussie and the Kiwi to just shrug off the returning risk-off vibes in Europe. Yippee Ki-Yay, I say.

  • French industrial production: 2.0% vs. 1.2% expected, -1.7% previous
  • French trade balance: -€5.4 vs. -€5.9B expected, -€6.6B previous
  • Italian industrial production (0.3% expected, 1.0% previous

Major Events/Reports:

ECB Draghi speaks

ECB Overlord Draghi gave a speech earlier (and is still in a Q&A session). And in his speech, Draghi said that the ECB’s monetary policy “has successfully stabilised inflation expectations.” And while the ECB’s monetary policy has a negative effect on “households, pension funds and banks,” such negative effects “have been limited.”

Draghi also noted that the recovery in the Euro Zone “is becoming increasingly solid” and that “there is now more and more evidence that economic growth is firming and broadening.” Moreover, “Incoming data confirm that the cyclical recovery of the euro area economy is becoming increasingly solid and that downside risks have further diminished.”

Even so, Draghi had this to say:

“Nevertheless, it is too early to declare success. Underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend. The domestic drivers of inflation, namely wages, are not yet responding to the recovery and the narrowing output gap. Maintaining the current very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term.”

Ouch! Draghi basically reiterated his dovish comments from the most recent ECB presser.

Commodities rise further

The broad-based commodities rally from the earlier Asian session continued for another round since commodities extended their gains during the morning London session.

Precious metals were still printing green.

  • Gold was up by 0.71% to $1,224.72 per troy ounce
  • Silver was up by 1.56% to $16.317 per troy ounce

Base metals were still mixed, but still mostly in positive territory.

  • Copper was up by 0.12% to $2.501 per pound
  • Zinc was up by 0.69% to $19,777.50 per dry metric ton

Oil benchmarks had a much strong showing compared to the Asian session.

  • U.S. WTI crude oil was up by 1.16% to $46.41 per barrel
  • Brent crude oil was up by 1.03% to $49.23 per barrel

Market analyst can’t really point to a clear catalyst for this round’s broad-based commodities rally, but bargain buying and expectations that supply would dwindle amid China’s crackdown were still likely in place.

However, some market analysts also point to rumors from yesterday that Saudi-owned Aramco would cut oil supply to Asia by seven million barrels in June.

Risk aversion returns in Europe

Risk aversion made a comeback in today’s European session, pushing European equity indices into negative territory.

  • The pan-European FTSEurofirst 300 was down by 0.08% to 1,552.78
  • Germany’s DAX was down by 0.04% to 12,743.50
  • The blue-chip Euro Stoxx 50 was down by 0.29% to 3,642.50

U.S. equity futures also got burned, signaling that risk aversion may carry over into the U.S. session.

  • S&P 500 futures were down by 0.18% to 2,389.00
  • Nasdaq futures were down by 0.06% to 5,672.88

Market analysts say the risk-off vibes in Europe was due to poor earnings reports for European construction companies and Italian banks.

Bond yields take a plunge

Another clear sign of risk aversion was the drop in global yields during the session.

  • Japanese 10-year bond yield down by 9.30% to 0.039%
  • U.S. 10-year bond yield up by 1.44% to 2.372%
  • French 10-year bond yield up by 5.15% to 0.755%
  • German 10-year bond yield up by 7.19% to 0.400%
  • U.K. 10-year bond yield up by 3.08% to 1.166%

Major Market Mover(s):

AUD & NZD

The Aussie and the Kiwi continued their battle for supremacy into the morning London session, thanks to another round of rising commodity prices.

This time, however, it was the Kiwi that had the upper hand and ended up as the one currency to rule them all. Incidentally, (well, not really) the Kiwi is now on course to be the best-performing currency of the day (so far) since AUD/NZD was down by 25 pips (-0.24%) to 1.0638

The RBNZ will give its rate decision, statement, and presser later, though, so the Kiwi’s position as top dog of the day is not yet set in stone. By the way, Forex Gump has a write-up on the upcoming RBNZ statement. You can read it here, if you’re interested.

NZD/USD was up by 39 pips (+0.57%) to 0.6938, NZD/JPY was up by 28 pips (+0.36%) to 78.96, NZD/CHF was up by 41 pips (+0.60%) to 0.6981

AUD/USD was up by 25 pips (+0.34%) to 0.7381, AUD/JPY was up by 10 pips (+0.11%) to 84.01, AUD/CHF was up by 26 pips (+0.25%) to 0.7428

GBP

Most pound pairs are actually trading sideways for the day, but they did get a sharp kick lower during the session. Other than profit-taking ahead of tomorrow’s BOE statement, there was no apparent catalyst, though. Also, most market analysts are just ignoring the wonky price action. Still, the selling pressure during the course of the session meant that the pound was the worst-performing currency of the session.

GBP/USD was down by 15 pips (-0.11%) to 1.2955, GBP/AUD was down by 78 pips (-0.45%) to 1.7551, GBP/NZD was down by 130 pips (-0.69%) to 1.8667

EUR

Despite positive low and medium-tier data during the session, the euro was the second worst-performing currency after the pound. ECB Overlord Draghi did say some dovish things, but the euro was already printing losses before Draghi even got to a mic. Preemptive selling on the expectations that Draghi would be a bit dovish is a possibility, though.

EUR/USD was down by 11 pips (-0.10%) to 1.0877, EUR/NZD was down by 105 pips (-0.67%) to 1.5675, EUR/AUD was down by 65 pips (-0.45%) to 1.4733

Watch Out For:

  • 12:30 pm GMT: U.S. import prices (0.2% expected, -0.2% previous)
  • 2:30 pm GMT: U.S. crude oil inventories (-2.0M expected, -0.9M previous)
  • 6:00 pm GMT: U.S. Federal budget will be released
  • 9:00 pm GMT: RBNZ rate decision and statement (OCR steady at 1.75% expected); read Forex Gump’s write-up on that here
  • 10:00 pm GMT: RBNZ press conference