Only low-tier economic reports were on the docket during today’s morning London session, so traders took directional cues mostly from risk sentiment. And since risk-taking was still the name of the game, the higher-yielding currencies had a rather good time, especially the Kiwi.
The pound is noteworthy as well since it had a good run during the session, even though there were no direct catalysts. And yet another noteworthy currency is the euro since it was the weakest currency of the session.
- Japanese preliminary machine tool orders y/y: 0.1% vs. -0.5% expected, 1.1% previous
- French BOF business sentiment: 104.0 vs. 105.0 previous
- Italian industrial production m/m: 0.1% vs. -0.3% expected, 1.1% previous
- Italian industrial production y/y: 4.4% vs. 3.8% expected, 5.2% previous
ECB’s Coeure speaks
ECB Board Member Benoit Coeure gave a speech earlier during the session. And, well, he basically tried to give a dovish message on monetary policy. He also tried to say that the exchange rate for the euro is not yet worryingly high, but he still tried to talk down the euro’s strength anyway.
As for specifics, Coeure had this to say on monetary policy:
“Compared with past demand shocks, policy will remain more accommodative for longer, thereby likely muting further the pass-through of any growth-driven exchange rate appreciation.”
“At the current juncture, however, the policy-relevant horizon – the ‘medium term’ concept in our monetary policy strategy – is likely to be longer given the persistence of subdued inflationary pressures.”
In essence, he’s saying that if the euro’s strength persists then prolonging the ECB’s accommodative monetary policy would help to offset the negative effects that a strong euro will bring.
Still, he did say that the euro’s strength is actually an affirmation of the recovery in the Euro Zone. Also, since the Euro Zone’s recovery is well underway, then the negative effects of the euro’s strength likely won’t be as strong.
To quote from the man himself:
“And with the current recovery in the euro area being largely driven by domestic demand, euro strength may also have less of an impact on growth than, for example, after the Great Financial Crisis”
However, he also warned that:
“Exogenous shocks to the exchange rate, if persistent, can lead to an unwarranted tightening of financial conditions with undesirable consequences for the inflation outlook.”
“Against this background, the recent volatility in the exchange rate represents a source of uncertainty which requires monitoring.”
Very optimistic start in Europe
The risk-on vibes from the earlier Asian session apparently spilled over into today’s morning London session.
As such, Europe is starting the new trading week on a rather upbeat note, with the major European equity indices were well in the green for the session.
And according to market analysts, the risk-on vibes during the morning London session was due to the strong performance of insurance companies on news that Hurricane Irma was downgraded to a Category 1 Storm.
- The pan-European FTSEurofirst 300 was up by 0.95% to 1,489.78
- Germany’s DAX was already up by 1.16% to 12,446.50
- The blue-chip Euro Stoxx 50 was up by 1.29 to 3,491.50
Even U.S. equity futures enjoyed the risk-on vibes.
- S&P 500 futures were up by 0.56% to 2,474.75
- Nasdaq futures were were up by 0.78% to 5,970.63
Commodities were mixed during the session, but precious metals, which are considered as traditional safe-havens, didn’t too well in the risk-friendly environment.
- Gold was down by 0.79% to $1,340.53 per troy ounce
- Silver was down by 1.47% to $17.856 per troy ounce
Another sign of risk-taking was that bond yields were glowing gamma green for the session and for the day.
- German 10-year bond yield up by 4.43% to 0.330%
- French 10-year bond yield up by 0.45% to 0.628%
- U.K. 10-year bond yield up by 4.14% to 1.031%
- U.S. 10-year bond yield up by 1.68% to 2.096%
Major Market Mover(s):
The Kiwi had a poor start during the earlier Asian session, but it more than made up for it during the morning London session since it was the top-performing currency of the session and is now also the second-strongest currency of the day after the Loonie. And Kiwi bulls can probably thank the risk-on vibes for that.
NZD/USD was up by 25 pips (+0.35%) to 0.7276, NZD/JPY was up by 31 pips (+0.39%) to 79.01, NZD/CHF was up by 19 pips (+0.28%) to 0.6911
The pound gave the Kiwi a good fight but lost out in the end and had to content itself with second place, at least during this session.
There were no direct catalysts for the pound’ strength. Although some market analysts were pointing to possible speculation that the BOE would present a more hawkish tone this week.
GBP/USD was up by 23 pips (+0.17%) to 1.3210, GBP/JPY was up by 32 pips (+0.23%) to 143.45, GBP/CHF was up by 14 pips (+0.11%) to 1.2549
Price action on the euro was kinda choppy. Even so, the euro is worth noting since it was the weakest currency of the session, apparently because of dovish rhetoric from ECB officials, with ECB Board Member Benoit Coeure’s speech being the most notable.
EUR/USD was down by 11 pips (-0.09%) to 1.1997, EUR/GBP was down by 23 pips (-0.26%) to 0.9081, EUR/NZD was down by 70 pips (-0.42%) to 1.6487
Watch Out For:
- 12:15 pm GMT: Canadian housing starts (216.0K expected, 222.3K previous)