The mid-week London Session brought a tale of two markets. The initial movement centered on a hiatus from the flight to safety theme following robust gains from “risky” global assets classes, led by US equities. The broad recovery in the Carry Trade predictably coincided with a sell off in the US dollar. The lone dissenter from the rally is the British Pound. Though September employment data was in-line with expectations, the cautious words of Bank of England Inflation Report sparked a furious rush for the exits. Volume and volatility increased substantially from already heightened levels. This event served as the catalyst for a mid-session Carry Trade reversal and is the second theme to a tale of two markets.  

In early London trading, the story was simple: momentum from the Carry Trade reversal back higher. From the 0300 EDT (0800 GMT) London open, EURUSD rocketed from 1.4645 to a high near 1.4715. GBPUSD lifted a big figure from an early low around 2.0740. EURJPY ascended as well, rallying over 100 pips to the 164.00 zone. The US dollar suffered, which has been the typical price action associated with a firm Carry Trade. USDCAD fell precipitously after finding sellers at 0.9590. The pair eventually bottomed at 0.9510. USDCHF shed about 50 pips from high to low, with the latter coming south of 1.1200.

The market was fairly stable, though whippy, heading into the 0530 EDT release of the BoE’s monthly inflation report. The tentative, calculated information hit the news wires and reverberated throughout global markets. Following a one minute “digestion period” in which GBPUSD sat at 2.0840, the British Pound was demolished from every direction, namely versus the USD, Japanese Yen, and Euro. Focusing on Cable, the pair plunged 200 pips lower to 2.0640 in a furious trade of extreme volatility and volume. The release served as a trigger for hesitancy within the FX market, causing market participants to eliminate risk (read: sell the Carry Trade) with aggression. In total, the move took 45 minutes.

From here, New York traders will likely see continued volatility coupled with very important economic data to come in the morning.

Upcoming Economic Data Releases (New York Session)

  • 0830 EDT Oct US Advance Retail Sales, consensus: +0.1% (relevance: high)
  • 0830 EDT Oct US Retail Sales less autos, consensus: +0.2% (relevance: high)
  • 0830 EDT Oct US PPI, consensus: +0.3% MoM, +6.4% YoY (relevance: high)
  • 0830 EDT Oct US Core PPI, consensus: +0.2% MoM, +2.6% YoY (relevance: high)
  • 0830 EDT Sept Canada New Motor Vehicle Sales MoM, consensus: -2.0% (relevance: low)
  • 0830 EDT Oct Canada Leading Indicators, consensus: +0.3% MoM (relevance: low)
  • 1000 EDT Sept Business Inventories, consensus: +0.4% (relevance: low)