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Volatility did not disappoint but price action was rather choppy during today’s morning London session. Even so, there was decent enough directional movement on some pairs because the pound and the Swissy were in a race to the bottom.

The yen, meanwhile, tried to climb higher amid the returning risk-off vibes in Europe. However, the comdolls gave the yen a really hard time. In fact, the Kiwi was able to steal a win from the yen and even emerged as this session’s top performer.

And while the euro had a mixed performance during the session and price action on euro pairs was rather messy, the euro is also worth mentioning since it encountered broad-based selling pressure near the end when the latest German election poll was released shortly before ECB-related rumors began to spread.

  • Euro Zone current account: €25.1B vs. €22.3B expected, €22.8B previous
  • German ZEW economic sentiment: 17.0 vs. 12.3 expected, 10.0 previous
  • Euro Zone ZEW economic sentiment: 31.7 v.s 32.4 expected, 29.3 previous

Major Events/Reports

ECB rumors

A Reuters report that cited “six sources” who have “direct knowledge of [the ECB’s] thinking” was released late into the session. Of course, it goes without saying that these sources were unnamed (as per the usual).

Anyhow, one of these sources claimed that “The strength of the euro is the number one problem.”

As Reuters explains, the rationale for this claim is that the euro’s strength “is threatening to curb inflation in the euro zone by making its imports cheaper and exports dearer.”

And as such, ECB officials are supposedly split, “on whether to set a definitive end-date for their money-printing program when they meet in October, raising the chance that they will keep open at least the option of prolonging it again” as Reuters puts it.

German election polling update

According to the latest weekly poll conducted by Forsa, and as cited in a Reuters report, voting intentions for German Chancellor Merkel’s CDU/CSU conservative bloc was down by 1% to 36% while the center-left SPD was in second place, with voting intentions steady at 23%.

The anti-EU and anti-immigration AfD, meanwhile, were also unchanged at 9%. As for the far-left Die Linke, support for it increased by 1% to 10%, making it the third most-favored political party in Germany.

The Reuters report also cited Forsa as saying that “only another grand coalition of Merkel’s conservatives with the SPD or a nationwide untested three-way ‘Jamaica’ alliance of the conservatives, FDP and Greens would have a stable majority.”

Commodities recover

Commodities were broadly in recovery mode during today’s morning London session after getting sold off yesterday.

Oil benchmarks did well.

  • U.S. WTI crude oil was up by 0.57% to $50.16 per barrel
  • Brent crude oil was up by 0.56% to $55.31 per barrel

Precious metals were also printing some gains.

  • Gold was up by 0.03% to $1,311.23 per troy ounce
  • Silver was up by 0.15% to $17.181 per troy ounce

Base metals, meanwhile, were mixed but most were in the green.

  • Copper was up by 0.17% to $2.974 per pound
  • Aluminim was up by 1.61% to $2,124.00 per dry metric ton

Market analysts pointed to Greenback weakness as the general reason for the commodities rally. After all, a weaker U.S. dollar means that globally-traded commodities become relatively cheaper for buyers holding other currencies.

And for reference, the U.S. dollar index was down by 0.07% to 91.75 for the day when the session ended. Although I just wanna point out that the Greenback’s performance during the morning London session itself was actually mixed, with choppy price action across many Greenback pairs.

Getting back on topic, some market analysts also attributed higher oil prices to an earlier comment from Iraqi Oil Minister Jabbar al-Luaibi which hinted at another possible OPEC oil cut deal.

As for the mixed price action on base metals, market analysts said that was due to profit-taking by large funds on some base metals, namely nickel and zinc.

Skittishness in Europe

Many of the major European equity indices had a good start before steadily slinking lower and then closing in the red by the end of the morning London session.

Risk aversion therefore appeared to be the more prevalent risk sentiment in Europe, at least during the morning London session.

The early signs of risk-taking were apparently due to the commodities rally that gave mining and energy shares a boost, as well as demand for banking shares amid expectations of future tightening moves from the ECB and BOE.

As for the later risk-off vibes, market analysts blamed that on skittishness ahead of tomorrow’s FOMC statement.

  • The pan-European FTSEurofirst 300 was down by 0.05% to 1,499.04
  • Germany’s DAX was down by 0.14% to 12,542.75
  • The blue-chip Euro Stoxx 50 was down by 0.03% to 3,527.50

Major Market Mover(s):

GBP

The pound had another bad run during today’s morning London session. There were no direct catalysts but some market analysts were still blaming BOE Guv’nah Carney’s cautious comments from yesterday.

GBP/USD was down by 36 pips (-0.27%) to 1.3494, GBP/NZD was down by 104 pips (-0.56%) to 1.8484, GBP/JPY was down by 64 pips (-0.43%) to 150.47

CHF

The Swissy was the worst-performing currency of the morning London session, which is rather wonky since risk aversion returned during the session. SNB intervention is always a possibility, but some market analysts also pointed to unwinding of safe-haven positions on the Swissy because of easing concern related to North Korea.

USD/CHF was up by 28 pips (+0.29%) to 0.9629, EUR/CHF was up by 12 pips (+0.11%) to 1.1530, AUD/CHF was up by 38 pips (+0.50%) to 0.7701

NZD

The higher-yielding Kiwi edged out the yen and its fellow comdolls to come out on top during today’s morning London session, despite the risk-off vibes. The commodities rally likely helped to boost the Kiwi, but it’s also likely that some traders were opening preemptive positions and/or unwinding preemptively ahead of the dairy auction.

NZD/USD was up by 21 pips (+0.29%) to 0.7299, NZD/CAD was up by 21 pips (+0.24%) to 0.8973, NZD/CHF was up by 41 pips (+0.60%) to 0.7029

Watch Out For:

  • 12:30 pm GMT: Canadian manufacturing sales (-1.7% expected, -1.8% previous)
  • 12:30 pm GMT: U.S. building permits (1,210K expected, 1,223K previous), housing starts (1,180K expected, 1,155K previous), and current account balance (-$112.4B expected, -$116.8B previous)
  • Dairy auction currently underway (0.3% previous); auction usually ends at around 2:00 pm GMT