Currency Pair Overview

Overall: Market sentiment was damaged by a third month of contracting retail sales and Federal Reserve Chairman Ben Bernanke, who said that government efforts to calm financial markets and stem the credit crisis probably won't result in an immediate economic rebound during a speech to the Economic Club of New York.

"Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away,'' Bernanke said today. "Economic activity will fall short of potential for a time.'' Speaking from the same prepared remarks used yesterday at the official announcement of the government's new initiatives, Mr. Bernanke pledged officials would "not stand down until we have achieved our goals of repairing and reforming our financial system.''

The 1.2% fall in September's Retail Sales, the largest decline in three years, followed a 0.4% drop in August which was worse than previously estimated. Excluding auto sales and gas station sales, all other retailers saw sales decline 0.7%. Sales fell 2.3% at furniture retailers; 0.6% at building material and garden supplies dealers; 2.3% at clothing stores; 1.5% at electronic stores; 0.5% at eating and drinking places; 1.1% at sporting goods, hobby and book stores; 0.4% at general merchandise stores; 0.5% at food and beverage stores; and 0.8% at mail order and Internet retailers.

The Producer Price Index fell 0.4% on a seasonally adjusted basis in September after falling 0.9% in August. It was the second straight month of declines in the headline number. For the year, the PPI was up 8.7%. The core PPI was double forecasts and increased 4% from a year ago, the highest annual rate since February 1991.

The Empire State Manufacturing Survey indicated that conditions for New York manufacturers deteriorated significantly in October. The general business conditions index dropped 17 points to a record-low -24.6. The new orders index also fell to a record low, and the indexes for shipments, unfilled orders, and inventories all declined sharply. The prices paid index eased significantly, to its lowest level of the year, while the prices received index also fell, although less sharply. Employment indexes were negative. Future indexes declined markedly with exceptionally large declines in the future new orders and shipments indexes.

Economic activity weakened across all 12 Federal Reserve districts, according to a report the Federal Reserve released Wednesday commonly known as the "Biege Book".The gloomy report shows that regions across the U.S. have taken on a more pessimistic view about the economic outlook.Most of the Fed's 12 regional banks reported that manufacturing has slowed and consumer spending has decreased.

The Euro (Eur/Usd) has seen fairly wide ranges of trade during the past couple of days. The 1.3600 area has become a very important swing point for the pair's action during the last two weeks. During the overnight session, the pair dropped to TheLFB R1 (1.3550), but recovered during European trading hours. Once in N.Y., the pair range traded until the poor U.S. retail sales report caused traders to close carry trade positions. In August, the German CPI fell 0.1%, in-line with market expectations. This is the second time when the CPI has shown deflation since April, as the high cost of energy has caused inflation to rise to record levels. Inflation fell in September to 3.6% from one-year earlier, in-line with the Flash CPI forecast. In August, the CPI recorded a 3.8% year-over-year read. In recent speeches, Mr. Trichet, head of the ECB Governing Council said the inflation risk lies to the downside and the recent rate cut was justified. According to the bank's analysis, the rate of inflation will reach the targeted 2% somewhere by the end of 2009

The Pound (Gbp/Usd) traded virtually flat during the overnight sessions, strengthening slightly at the close of Asian trading. Compared to the euro and the swissy, the pound is the only European based currency that did not fall against the dollar since the U.S. session closed on Tuesday, even though yesterday's trade saw the three pairs move in tandem. Once in N.Y., the pair declined as the market grew risk-averse. The unemployment rate increased again in the U.K., in the latest three months to August 2008. The released number of 5.7% is higher than market expectations of 5.5%. The number of people seeking unemployment benefits rose steady in August. The report shows there were 939,900 persons on the claimant count in September, up 31,800 from one month earlier

The Aussie (Aud/Usd) fell 140 pips during the Asian session, but recovered almost every pip during the European session. The pair is now at the mercy of carry trades, as the high swap rate the aussie pays makes it extremely vulnerable to risk aversion. The aussie will strengthen only if the equity markets continue to trade in positive territory, which they did not in N.Y. after U.S. retail sales declined for a third month. Australia's economic activity had an expectation of annualized growth of 2.5 percent in the month of August reports the Westpac Bank-Melbourne Institute. The leading index was down from an expected growth of 3.3 percent, which was forecasted in July's survey. This is well below the long-term trend of 4.0 percent annualized growth. These are the weakest reading seen since the third quarter of 2002.

The Cad (Usd/Cad) moved an impressive number of pips during the overnight session, as the trading range reached 140 pips, but as we headed into the U.S. open, the pair was trading virtually unchanged from where it closed Tuesday's U.S. trading. So far, the cad has moved more than the European pairs, ignoring the fact that on average during overnight trading the Canadian dollar barely moves 30 pips. Once in N.Y., the pair rose as crude declined over $3 per barrel.

The Swissy (Usd/Chf) moved in a tight range, staying close to the 1.1350 level, which lately has become an important swing point. On an intra-day basis, the swissy managed to break above the high of Tuesday's trade, since the early Asian session opened, but did not manage to move anywhere from that point. It seems that this has become the pair's pattern of trading, at least for the past few weeks, content to hover around support and resistance levels. The pair remained in a tight trading range during the N.Y. session.

The Yen (Usd/Yen) traded lower in the overnight sessions, as the market was again in a risk aversion phase. The pair fell to TheLFB S1 (101.40), but was not able to break lower. The pair declined in N.Y. as the S&P fell over 5% on the day. Japan's Industrial Production tumbled 3.5% in August, as the market expected. Compared with one year ago, industrial production fell by 6.9%. In August, Japanese industrial production decreased for the first time in two months.

Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com

TheLFB Risk Disclaimer can be found at http://www.thelfb-forex.com/content.aspx?id=174.

The Copying, Broadcast, Republication or Redistribution of TheLFB Content is Expressly Prohibited Without the Prior Written Consent of LFB Services, LLC.