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There wasn’t much on the docket for today’s morning London session. Even so, there was still enough action to keep the session interesting.

And the most noteworthy theme that played out during the session was another round of selling pressure on the Kiwi and the Aussie, with the Kiwi getting the worst of it.

The pound is also worth mentioning since it was steady during the first half of the session but later found itself swamped by sellers during the later half, even though there were no direct catalysts.

Yet another currency worth mentioning is the euro since it found buyers after ECB Overlord Draghi gave his speech and even ended up as the top-performing currency of the session.

  • Euro Zone current account: €37.8B vs. €30.2B expected, €34.5B previous
  • Canada’s CPI readings coming up

Major Events/Reports

ECB’s Draghi speaks

ECB Overlord Draghi delivered a prepared speech earlier. And in his speech, the Draghster first talked about the Euro Zone economy, pointing out that the “euro area is in the midst of a solid economic expansion” and that “GDP has risen for 18 straight quarters.”

Even better, “the latest data and surveys [are] pointing to unabated growth momentum in the period ahead,” according to Draghi.

And the ECB is confident “that the recovery is robust and that this momentum will continue going forward.”

Draghi also added that the ECB is confident in the Euro Zone’s economic recovery because “the drivers of growth are increasingly endogenous rather than exogenous.”

This means, according to Draghi, that there are “more signs that growth is ‘feeding on itself’, i.e. spending multipliers and endogenous propagation are again supporting activity.”

In other words, the recovery is becoming more sustainable and no longer as reliant on accommodative monetary policy.

Moving on, Draghi also talked about how monetary policy has impacted banks. And according to Draghi:

“As regards bank profitability, ECB research finds little evidence that our monetary policy is currently doing harm. Net interest income has remained quite stable over the past two years. If there are any negative effects of low rates on net interest income in the future, they should be largely offset by the positive effects of monetary stimulus on the other main components of profitability, such as the quality of loans and therefore on loan-loss provisions.”

Draghi then said this rather hawkish bit:

“Low-for-long interest rates might contribute to a build-up of financial risks, and this has to be carefully monitored.”

However, he was quick to add that:

“At present we do not see systemic risks emerging at the euro area level.”

Sneaky Draghi. Even so, Draghi’s words do imply that the ECB is more likely to switch to a more hawkish stance rather than to a more dovish one.

So far, so good, right? Well, the Draghster also talked about inflation. And unfortunately he wasn’t too upbeat on that when he said the following:

“Despite this progress on the real side of the economy, from a monetary policy perspective our task is not complete, as we have not yet seen a sustained adjustment in the path of inflation.”

“We do now see inflation moving steadily away from the very low levels of recent years, although progress remains incomplete and partial.”

And since the ECB is not yet convinced that the recent strenthening in inflation is sustainable, Draghi concluded by saying that:

“An ample degree of monetary stimulus remains necessary for underlying inflation pressures to build up and support headline inflation over the medium term.”

Commodities rise after week-long slide

Commodities staged a broad-based rally during today’a morning London session. And the likely reason for the commodities rally is bargain buying after commodities got hammered this week.

Also, the U.S. dollar was down for the day, with the U.S. dollar index down by 0.25% to 93.61 for the day when the session ended. And that may have also enticed sellers. After all, globally-traded commodities (that are prices in US$) become relatively cheaper when the Greenback weakens.

Base metals were in positive territory.

  • Copper was up by 0.39% to $3.060 per pound
  • Nickel was up by 1.05% to $11,507.50 per dry metric ton

Oil benchmarks outperformed.

  • U.S. WTI crude oil was up by 1.60% to $56.02 per barrel
  • Brent crude oil was up by 1.22% to $62.11 per barrel

Precious metals also found buyers.

  • Gold was up by 0.41% to $1,283.45 per troy ounce
  • Silver was up by 0.06% to $17.083 per troy ounce

Risk-off, but sentiment improving

The major European equity indices had a weak start and then weakevened even further. However, there were tentative signs that risk appetite was returning since the major European equity indices began paring their earlier losses.

Market analysts blamed the early risk-off vibes on poor earning reports. As for the later signs of recovering risk sentiment, there’s no clear reason for that. Shares for mining and energy companies were in the green, though, so the commodities rally may be a reason.

  • The pan-European FTSEurofirst 300 was still down by 0.17% 1,510.83 but off the day’s low at 1,507.66
  • Germany’s DAX was still down by 0.01% to 13,047.00 but off the day’s low at 13,015.00
  • The blue-chip Euro Stoxx 50 was still down by 0.01% to 3,564.62 but off the day’s low at 3,550.50

Major Market Mover(s):

NZD & AUD

The Kiwi and Aussie had a bad run during the morning London session. In fact, the Kiwi was the worst-performing currency of the session while the Aussie was the third weakest currency.

And the wonky thing about all this is that the  higher-yielding Kiwi and Aussie weakened even though commodities rallied and risk sentiment showed signs of improving.

Looking at price action, however, it seems like the Aussie and the Kiwi were taking directional cues from risk sentiment since they both suffered the bulk of their losses at the start of the session when risk aversion clearly dominated.

And when risk sentiment began to show signs of improving, both currencies found support on most pairs and traded roughly sideways until the session came to a close. It’s still kinda strange why traders didn’t try to bid the two currencies  higher, though.

NZD/USD was down by 36 pips (-0.52%) to 0.6791, NZD/JPY was down by 37 pips (-0.48%) to 76.48, NZD/CHF was down by 34 pips (-0.51%) to 0.6736

AUD/USD was down by 10 pips (-0.13%) to 0.7550, AUD/JPY was down by 8 pips (-0.10%) to 85.02, AUD/CHF was down by 9 pips (-0.11%) to 0.7489

EUR

The euro was the best-performing currency of the morning London. And demand for the euro noticeably perked up after ECB Overlord Draghi gave his speech.

As discussed earlier, Draghi didn’t really say anything too surprising. However, Draghi also didn’t say anything blatantly dovish. There were even subtle hints that the ECB may be more prone to switching to a hawkish bias. And that may have enticed some bulls to jump in.

EUR/AUD was up by 28 pips (+0.18%) to 1.5617, EUR/NZD was up by 87 pips (+0.56%) to 1.7361, EUR/GBP was up by 34 pips (+0.39%) to 0.8935

GBP

The pound was steady during the first half of the morning London session but got bombarded by sellers during the later half, so much so that the pound ended up as the second weakest currency of the session. There were no apparent catalysts for the pound’s sudden weakness, however.

GBP/USD was down by 47 pips (-0.36%) to 1.3196, GBP/JPY was down by 47 pips (-0.32%) to 148.61, GBP/CHF was down by 43 pips (-0.33%) to 1.3089

Watch Out For:

  • 1:30 pm GMT: Canadian headline CPI (+0.1% expected, +0.2% previous)
  • 1:30 pm GMT: U.S. building permits (1.25M expected, 1.23M previous) and housing starts (1.19M expected, 1.13M previous)
  • 3:30 pm GMT: CB’s Australian leading index (0.1% previous)