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Price action was rather wonky during today’s morning London session. And special mention goes to the euro and the Greenback since the former got sold off hard while the latter was in recovery mode, even though there were no apparent catalysts. Although the euro did get a negative catalyst later on when the ECB’s meeting minutes were released, but the euro already moved lower a great deal before that.

  • U.K. retail sales m/m: 0.3% vs. 0.2% expected, 0.6% previous
  • U.K. retail sales y/y: 1.3% vs. 1.4% expected, 2.9% previous
  • Final Euro Zone HICP y/y: no revision from 1.3% as expected
  • Final Euro Zone core HICP y/y: no revision from 1.2% as expected
  • Euro Zone trade balance: €22.3B vs. €20.4B expected, €19.0B previous

Major Events/Reports

Net negative U.K. retail sales report

The Office for National Statistics released the U.K.’s retail sales report for the July period earlier today. And fortunately, retail sales volume in the U.K. rose by 0.3% month-on-month, beating expectations for a 0.2% rise.

Unfortunately, the previous reading was revised lower from a very solid +0.6% to a not as solid +0.3%, which is a real bummer

Year-on-year, retail sales volume rose by 1.3%, which is a smaller increase compared to the +1.4% consensus. Also, this is a drastic slowdown from June’s promising 2.9% surge, which is a bad sign for consumer spending and a bad start for Q3 GDP growth.

ECB Minutes

The minutes of the ECB’s July huddle were released during the later half of the morning London session.

And according to the minutes, ECB officials think that the “appreciation of the euro to date could be seen in part as reflecting changes in relative fundamentals in the euro area vis-à-vis the rest of the world.”

However, “concerns were expressed about the risk of the exchange rate overshooting in the future.”

And while the ECB was optimistic on the Euro Zone’s growth prospects, adding that “some upside risks to the short-term outlook” and “Downside risks [were] mainly related to global factors,” the ECB also noted that “euro area HICP inflation was still subdued. Measures of underlying inflation had remained low and were yet to demonstrate convincing signs of a pick-up, as domestic cost pressures, including wage growth, remained muted.”

Moreover, “Caution was expressed that, in the present financial market environment, markets were particularly sensitive to incoming information.” As such, “the Governing Council needed to gain more policy space and flexibility to adjust policy and the degree of monetary policy accommodation, if and when needed, in either direction.”

On a more hawkish note, the minutes also mentioned that “A suggestion was made that some consideration be given to an incremental adjustment in the language on forward guidance, because postponing an adjustment for too long could give rise to a misalignment between the Governing Council’s communication and its assessment of the state of the economy, which could trigger more pronounced volatility in financial markets when communication eventually had to shift.”

Commodities resume slide, but precious metals rise

Commodities had a reversal of fortunes during the morning London session since most commodities resumed their downhill slide while precious metals, which failed to find support yesterday, were able to resist and climb higher today.

Base metals were mixed after yesterday’s very strong performance. Most were in the red or off their highs, however.

  • Copper was down by 0.22% to $2.947 per pound
  • Zinc was down by 0.71% to $3,093.50 per dry metric ton

Oil benchmarks were down.

  • U.S. WTI crude oil was down by 0.32% to $46.63 per barrel
  • Brent crude oil was down by 0.20% to $50.17 per barrel

Precious metals found buyers, likely because of safe-haven demand due to the returning risk-off vibes.

  • Gold was up by 0.64% to $1,291.05 per troy ounce
  • Silver was up by 0.74% to $17.066 per troy ounce

Market analysts say that base metals were in retreat because of profit-taking after yesterday’s broad-based surge.

As for the slide in oil prices, market analysts blamed that on concerns over signs of higher U.S. oil output, which dampened optimism from the draw in U.S. oil inventories.

Risk aversion returns

After several days of non-stop risk-taking, risk aversion finally staged a comeback which sent the major European equity indices into negative territory.

Market analysts blamed the returning risk-off vibes on the poor performance of banking shares due to the FOMC minutes’ dovish tone on inflation, as well as the poor performance of energy shares because of the slide in oil prices during the session.

  • The pan-European FTSEurofirst 300 was down by 0.13% to 1,487.08
  • Germany’s DAX was down by 0.12% to 12,249.50
  • The blue-chip Euro Stoxx 50 was down by 0.21% to 3,478.50

The returning risk-off mood also took its toll on U.S. equity futures.

  • S&P 500 futures were down by 0.23 to 2,461.88
  • Nasdaq futures were down by 0.39% to 5,900.12

Major Market Mover(s):

EUR

The euro showed weakness during the course of the session. There’s no clear reason why, but preemptive positioning ahead of the ECB minutes is highly probable, especially after yesterday’s Reuters report cited unnamed sources as saying that ECB Overlord Draghi will not be providing hints on the ECB’s highly anticipated tightening move in next week’s Jackson Hole Symposium.

Another sign that the euro’s weakness was due to preemptive moves is the fact that the euro found support (for now) instead of dropping even lower when the ECB minutes were released. Basically, a case of “buy the rumor, sell the news,” or to be more accurate, “sell the expected dovish tone, buy upon the actual release.”

EUR/USD was down by 64 pips (-0.54%) to 1.1699, EUR/JPY was down by 46 pips (-0.36%) to 128.88, EUR/CHF was down by 52 pips (-0.46%) to 1.1320

USD

The Greenback was in recovery mode during the morning London session after yesterday’s beat-down in the wake of Trump-related news and the FOMC minutes.

The recovery was broad-based and strong enough that the Greenback ended up being the best-performing currency of the session. However, aside from profit-taking by shorts, there aren’t really any major catalysts for the Greenback’s strength.

GBP/USD was down by 22 pips (-0.17%) to 1.2866, NZD/USD was down by 16 pips (-0.22%) to 0.7303, AUD/USD was down by 17 pips (-0.22%) to 0.7929

Watch Out For:

  • 12:30 pm GMT: Canada’s manufacturing sales (-1.0% expected, 1.1% previous)
  • 12:30 pm GMT: U.S. initial jobless claims (240K expected, 244K previous)
  • 12:30 pm GMT: Philadelphia Fed’s manufacturing index (18.3 expected, 19.5 previous)
  • 1:15 pm GMT: U.S. industrial production (0.3% expected, 0.4% previous) and capacity utilization rate (76.7% expected, 76.6% previous)
  • 2:00 pm GMT: CB’s U.S. leading index (0.3% expected, 0.6% previous)
  • 4:30 pm GMT: Dallas Fed President Robert Kaplan will speak