Currency Pair Overview
Overall: It was a relatively quiet day in the markets (for a change) in part because no new economic data was released in the U.S. Goldman Sachs downgraded its estimates of 2009 GDP and said that the unemployment rate could reach 9% by the second half.
The Euro (Eur/Usd) advanced 150 pips during the overnight session to just above 1.2600. The pair started the upside move during the Asian session, but only after it re-tested the low reached on Thursday. The trading range was tight in N.Y., and support was seen at 1.24.35.
The European PMI service shows that both the service and manufacturing side of the economy are still in a contraction phase. This is the sixth consecutive month when the two indexes have shown a read below the 50.0 level, which separates contraction from growth. The German service PMI was released at 46.2, showing the industry has contracted during the last two months, while the manufacturing index came at 36.7, much lower than expected. It seems that the manufacturing side of the economy is being affected much more by the global slowdown than the service side.
The Pound (Gbp/Usd) for once, followed the direction of the overall market and advanced against the dollar. The pound traded flat during the Asian session, but the pair strengthened in Europe to trade above 1.4950 after having gained 240 pips since Thursdays U.S. session close. The pair declined in N.Y. until support was found near 1.4700.
The Aussie (Aud/Usd) rose 150 pips during the overnight session after it was announced the Reserve Bank of Australia intervened in the currency market to support the falling Australian dollar. At the start of the trading day, the aussie was trading near a five year low, but has recovered overnight and is currently trading above 0.6259. The pair found support in N.Y. at o.6150 and looked to finish the session relatively flat.
The Cad (Usd/Cad) has been unable to add to recent gains overnight, running into a brick wall at the 1.3000 level and losing 200 pips. The trading volume was light and the pair traded in line with other major currency pairs that have seen the dollar weaken. The pair rose in N.Y. as the canadian dollar headed to its second straight weekly decline on the back of crude's fall below $50 per barrel.
Canada's rate of inflation fell in October much more than expected. The CPI fell 1.0% from one month earlier, but is still up 2.6% from October 2007, while the Core CPI fell by 0.2% from one month earlier. Gasoline prices, which were to blame for the high increase in the CPI, fell again in October. However, food prices continued to gain momentum, rising for the eighth consecutive month in October.
The Swissy (Usd/Chf) struggled to break higher during the European session, testing 1.2300 before tiring and moving lower. In the last few days the swissy has continued to stair step higher, adding to the previous day’s gains, despite the trading range continuing to be one of the smallest of the majors. The pair traded relatively flat in N.Y., finding resistance at 1.2300.
The Yen (Usd/Yen) moved higher overnight, reflecting the strong gains in the U.S. futures markets. During the Asian session the pair tested the low reached on Thursday, but started to trend higher soon after. During the European trading hours, the pair continued to strengthen and is currently 150 pips higher than Thursday’s U.S. session close. The pair moved with the equity markets in a tight range, and managed to hold above the critical 95 level.
The Bank of Japan decided unanimously to keep the Overnight Call Rate at 0.30%. This comes after the BoJ had cut rates at the last meeting from 0.50% to 0.30%, while the market expected a full 25 basis points cut. With the lowest rate amid industrialized countries, economists argue that the low interest rate will not provide strong enough relief to the Japanese economy, and that the central bank has mostly depleted its powers to influence the business cycle by using monetary policy. The Bank of Japan announced tonight that they are planning to expand their collateral base (the financial assets banks pledge for short- term loans) to also include corporate bonds.\
Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com
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