Price action was rather choppy during the morning London session and many pairs are actually range-bound if you also take into consideration the price action from earlier sessions.
With that said, there were some themes that were clearly playing out, such as the pound getting whupped and ending up at the bottom of the forex heap, as well as demand for both the yen and the Greenback ahead of New Fed Head Powell’s testimony.
- French consumer confidence: 100.0 vs. 103.0 expected, 104.0 previous
- Euro Zone industrial sentiment: 8.0 as expected vs. 8.8 previous
- Euro Zone consumer confidence: unchanged at 0.1 as expected
- Spanish HICP m/m: 0.1% vs. -0.9% expected, -1.5% previous
- Spanish HICP y/y: 1.2% vs. 0.9% expected, 0.7% previous
- Euro Zone private sector loans: 2.9% as expected, same as previous
- New Fed Chair Powell will be speaking shortly
Moody’s on the U.K. economy & Brexit
According to Moody’s “UK Brexit Monitor” report released during the session, “The UK economy grew at a slightly slower pace in early 2018, survey data suggest, and retail sales remained sluggish in January.”
Moreover, “Employment growth softened in December but remains firmly positive, while volatility has increased in recent months. Hiring intentions among manufacturers fell in January and remain subdued in the services sector.”
To add to that, “Consumer indicators are below five-year averages and household consumption growth has slowed since the Brexit referendum in June 2016. Lacklustre retail sales fell further below their five-year trend in January.”
Overall, Moody’s presented a mostly negative assessment and outlook for the U.K. economy because of Brexit.
The only upbeat assessment from Moody’s is that “Consumer price inflation — on both the headline and core measures – has edged higher since the referendum and is close to the highest level in five years.”
However, Moody’s still gave it a slightly negative twist by adding that “producer price inflation eased in January, continuing its fall during the second half of 2017 as the value of pound sterling stabilised.”
ECB Governing Council Member and Bundesbank President Jens Weidmann was speaking earlier.
And he said some rather hawkish things, which is not really surprising, since Weidmann has been showing his hawkish bias for months.
Even so, Weidmann’s comments are worth noting since Weidmann is expected to be one of the candidates to succeed ECB Overlord Draghi, whose term expires next year.
Anyhow, Weidmann said that:
“If the upswing continues and prices rise accordingly, in my view, there is no reason why the Governing Council should not end the net purchases of securities this year.”
“I believe it is important to gradually and dependably reduce the degree of monetary policy accommodation when the outlook for price developments in the euro area permits us to do so.”
In short, Weidmann wants to put an end to the ECB’s QE program, which is a rather hawkish thing to say.
Not only that, Weidmann also had this to say about interest rates (emphasis mine):
“The market has certain expectations on a possible interest-rate change in 2019, based not only on the dataset, but also on our communication, and these expectations are — I’d say — not completely unrealistic, they seem to be ‘prima vista’ plausible”
Risk aversion returns to Europe
Most of the major European equity indices opened firmer and then tried to harvest more gains.
However, selling pressure eventually returned and pushed them back, so much so that most of the major European equity indices were already in negative territory by the end of the session.
And that shows that risk aversion was the prevailing sentiment in Europe.
However, aside from jitters ahead of New Fed Head Powell’s testimony, market analysts couldn’t really pin point the reason why risk aversion made a comeback during the session.
- The pan-European FTSEurofirst 300 was down by 0.35% to 1,495.07
- Germany’s DAX was down by 0.53% to 12,460.61
- The blue-chip Euro Stoxx 50 was down by 0.34% to 3,456.50
U.S. equity futures were also pushed lower into negative territory, reinforcing the idea that risk aversion was the dominant sentiment.
- S&P 500 futures were down by 0.27% to 2,777.00
- Nasdaq futures were down by 0.24% to 6,983.00
Major Market Mover(s):
The pound got whupped across the board and was the worst-performing currency of the morning London session.
And looking at price action, most pound pairs began encountering sellers at around 9 am GMT, which is when Moody’s report began to make the rounds.
The pound’s weakness therefore appears to be a reaction to Moody’s report, which had a mostly negative assessment and outlook on the U.K. economy because of Brexit.
GBP/USD was down by 48 pips (-0.34%) to 1.3937, GBP/JPY was down by 47 pips (-0.32%) to 149.18, GBP/CHF was down by 39 pips (-0.30%) to 1.3058
The safe-haven yen likely got a boost from the risk-off vibes since there weren’t really any major catalysts. Although it’s also possible that the yen was taking directional cues from bond yields since bond bond yields were still in the green but came off their highs during the session.
Whatever the case, the yen’s bullish boost was enough to allow the yen to put up a good enough fight against Greenback domination and close out the session as the second best-performing currency.
EUR/JPY was down by 22 pips (-0.17%) to 131.84, CAD/JPY was down by 16 pips (-0.19%) to 84.22, NZD/JPY was down by 13 pips (-0.16%) to 77.90
The Greenback was the one currency to rule them all during the morning London session.
There weren’t really any apparent catalysts for the Greenback’s strength, but it’s possible that we’re just seeing preemptive positioning and/or short-covering ahead of New Fed Chair Powell’s testimony.
USD/JPY was up by 4 pips (+0.04%) to 107.06, USD/CHF was up by 6 pips (+0.07%) to 0.9372, USD/CAD was up by 27 pips (+0.22%) to 1.2710
Watch Out For:
- 1:30 pm GMT: New Fed Boss Powell will testify
- 1:30 pm GMT: Headline (-2.5% expected, 2.8% previous) and core (0.3% expected, 0.7% previous) U.S. durable goods orders
- 1:30 pm GMT: U.S. wholesale inventories (0.4% expected, same as previous)
- 1:30 pm GMT: U.S. goods trade balance (-$72.5B expected, -$72.3B previous)
- 2:00 pm GMT: U.S. FHFA HPI (0.4% expected, same as previous)
- 2:00 pm GMT: S&P Case-Shiller HPI (6.35% expected, 6.41% previous)
- 3:00 pm GMT: CB’s U.S. consumer confidence (126.4 expected, 125.4 previous)
- 3:00 pm GMT: Richmond Fed’s manufacturing index (15 expected, 14 previous)
- 9:00 pm GMT: Canada’s annual budget
- 9:45 pm GMT: Visitor arrivals in New Zealand (-2.8% previous)