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Risk aversion made a comeback in Europe and the higher-yielding Kiwi apparently took the brunt of it since the Kiwi was the worst-performing currency of the session. Although the Aussie, which is also a higher-yielding currency, wasn’t too far behind.

Meanwhile, the euro and the pound were busy fighting for the top spot, with the euro ultimately coming out on top near the end, thanks to the ECB meeting minutes and returning selling pressure on the pound.

  • German factory orders m/m: 1.0% vs. 1.9% expected, -2.2% previous
  • Swiss CPI m/m: -0.1% vs. 0.0% expected, 0.2% previous
  • Euro Zone PMI: 53.2 vs. 52.0 previous

Major Events/Reports

ECB Minutes

The minutes of the ECB’s June huddle were released late into the session. And reading quickly through the minutes, we see that the ECB had a rather upbeat outlook on the Euro Zone economy, which is not really all that surprising since the ECB did upgrade its growth forecasts back in June, but there you go.

“Incoming information since the late-April meeting of the Governing Council confirmed that the economic upturn had gathered some further momentum. The latest Eurosystem staff projections also pointed to a solid and broad-based economic expansion, at a somewhat faster pace than previously expected. Risks to the growth outlook could now be considered to be broadly balanced, supporting confidence that the economic expansion was on a stronger footing.”

The one economic data point that the ECB singled out as being a disappointment is the subdued inflation, “despite the strengthening of the economic expansion.”

Moreover, “the outlook for headline inflation was expected to be more subdued than previously anticipated.”

Again, not very surprising since the ECB slightly downgraded its near-term inflation projections back in June.

There was an interesting bit about “the combination of a downward revision to the outlook for underlying inflation and an upward revision to the outlook for economic activity in the staff projections,” which was “seen as puzzling” by ECB members and could be a sign that measures of economic slack “underestimate the real degree of unutilised resources.”

However, ECB Vice Lord Constancio already spilled the beans on this one last week during a CNBC interview.

And then we got these (emphasis mine):

“It was recalled that specifically the easing bias on policy rates had been introduced to signal the direction of the Governing Council’s policy response in the event of very severe contingencies that would put the achievement of the inflation objective at risk. At this juncture, the probability of very adverse scenarios, such as those related to deflationary risks, had largely vanished.”

That explains in more detail why the ECB removed its easing bias on interest rates. Basically, the ECB thinks the deflationary risks are gone so there’s no longer any need for a cutting bias on interest rates.

Recall, however, that the ECB maintained its easing bias on its QE program. But very, very interestingly enough, the minutes had these to say:

“Similarly, it was argued that the improved economic environment with vanishing tail risks, in principle, suggested also revisiting the easing bias with respect to the APP purchases, whereby the Governing Council signalled its readiness to increase the pace and/or duration of the asset purchases if necessary.”

“However, it was cautioned that prudence remained warranted, as the economic expansion had yet to translate into stronger inflation dynamics, and a sustained adjustment in the path of inflation towards the Governing Council’s inflation aim could not yet be confirmed. The assessment of the prospects for a sustained adjustment argued for patience, as the inflation outlook remained vulnerable to a premature tightening of the monetary policy stance.”

“Therefore, in the light of the prevailing uncertainties, predominantly related to global factors, the Governing Council was well advised to adapt its forward guidance to the changing economic environment only very gradually.”

“At the same time, it was cautioned that even small and incremental changes in the communication could be misperceived as signalling a more fundamental change in policy direction. This could trigger unwarranted movements in financial conditions, which could put the prospects of a sustained adjustment of inflation at risk.”

In simpler terms, ECB officials also talked about removing their easing bias on the ECB’s QE program, but decided against it because inflation is not yet deemed sustainable. Moreover, if the ECB removes its easing bias on its QE program, it may cause financial conditions to tighten (i.e. higher bond yields) and the ECB doesn’t want that.

Commodities recover

Commodities finally found some respite during today’s morning London session.

Precious metals were in positive territory.

  • Gold was up by 0.12% to $1,223.14 per troy ounce
  • Silver was up by 0.52% to $15.978 per troy ounce

Base metals were mixed but mostly up.

  • Copper was up by 0.26% to $2.667 per pound
  • Zinc was up by 0.21% to $2,786.00 per dry metric ton

Oil benchmarks were in full-blown rally mode.

  • U.S. WTI crude oil was up by 1.48% to $45.80 per barrel
  • Brent crude oil was up by 1.30% to $48.41 per barrel

The U.S. dollar index was down by 0.23% to 95.75 for the day when the session ended. And that, plus the rout during the past couple of days, may have prompted some bargain-buying. After all, a weaker dollar means that globally-traded commodities, which are prices in U.S. dollars, become relatively cheaper.

As for the extra strong demand for oil, market analysts pointed to speculation that official U.S. crude oil inventory numbers from the Energy Information Administration would print a draw, thanks to leading data from the American Petroleum Institute showing a drop in U.S. oil inventories of 5.8 million barrels.

Risk aversion makes a comeback

There were signs of returning risk appetite yesterday, but those were swept away when risk aversion made a comeback during today’s morning London session.

  • The pan-European FTSEurofirst 300 was down by 0.91% to 1,491.57
  • Germany’s DAX was down by 0.92% to 12,339.50
  • The blue-chip Euro Stoxx 50 was down by 1.22% to 3,438.50

U.S. equity futures also got saddled by the weight of the returning risk-off vibes.

  • S&P 500 futures were down by 0.45% to 2,417.00
  • Nasdaq futures were down by 0.82% to 5,604.88

Market analysts pointed to poor earning reports for certain European companies as the main source of the risk-off vibes.

Major Market Mover(s):


The Kiwi really felt the pain during today’s morning London session. There were no apparent catalysts and commodities were actually in rally mode, but it’s very likely that the returning risk-off vibes weighed down on the higher-yielding Kiwi.

NZD/USD was down by 39 pips (-0.54%) to 0.7246, NZD/JPY was down by 31 pips (-0.37%) to 82.13, NZD/CHF was down by 44 pips (-0.63%) to 0.6989


The euro got a bullish before the ECB minutes got released. There was no clear reason why, but preemptive positioning may have been a reason.

And when the minutes were finally released, the euro jumped even higher as a knee-jerk reaction, very likely because market players were pleased to learn that ECB officials also discussed removing the ECB’s easing bias on its QE program.

EUR/USD was up by 44 pips (+0.39%) to 1.1386, EUR/AUD was up by 89 pips (+0.59%) to 1.5009, EUR/NZD was up by 146 pips (+0.94%) to 1.5712


Price action on the pound was rather wonky since it jumped higher about halfway through the session, even though there were no apparent catalysts. Selling pressure was quick to return, though, which implies that technicals were in play since many pound pairs have been range-bound for the past couple of days.

GBP/USD was up by 6 pips (+0.05%) to 1.2945, GBP/NZD was up by 101 pips (+0.57%) to 1.7861, GBP/AUD was up by 39 pips (+0.23%) to 1.7064

Watch Out For:

  • 12:15 pm GMT: ADP’s U.S. non-farm employment change (184K expected, 253K previous)
  • 12:30 pm GMT: Canada’s trade balance (-$0.5B expected, -$0.4B previous) and building permits (2.5% expected, -0.2% previous)
  • 12:30 pm GMT: U.S. trade balance (-$46.3 expected, -$47.6 previous) and initial jobless claims (243K expected, 244K previous)
  • 1:45 pm GMT: Markit’s final services PMI (unchanged at 53.0 expected)
  • 2:00 pm GMT: ISM’s non-manufacturing PMI (56.5 expected, 56.9 previous)
  • 2:00 pm GMT: U.S. Fed Governor Jerome Powell will speak
  • 3:00 pm GMT: U.S. crude oil inventories (-2.4M expected, 0.1M previous)