Currency Pair Overview

Overall: The lower yielding currencies continued to strengthen in the European session allthough during the Asian session things were not clear enough to determine if the market was retracing portions of the moves made on Monday, or if the market was again entering into a risk aversion mode. As the European session got into full swing it seemed that the market was again selling risk as bullish momentum from the President-elect Obama's plan is evaporating. U.S. stocks opened lower and made a brief comeback after the better-than-expected pending home sales number was released, but the momentum couldn't hold.

In U.S. economic news, the index of signed purchase agreements, or pending home resales, fell a less-than-forecast 0.7% to 88.9 in October from a revised 89.5 in September, according to a report from the National Association of Realtors (NAR) released today. Economists expected pending sales to fall 3%.

The Euro (Eur/Usd) quickly fell to the neutral pivot point (1.2875) during the Asian session and continued to move along side the pivot point. The European session brought additional downward pressure as the low yielding currencies strengthened as S&P futures declined slowly. The pair rose sharply in N.Y. as Wall Street began trading, but the rally faded and the pair looked set to finish the day lower.

German investor confidence unexpectedly rose for a second month in December after the ECB lowered borrowing costs. The ZEW Center for European Economic Research said its index increased to minus 45.2 from minus 53.5 in November. The index reached minus 63.9 in July, the lowest since it was first compiled in December 1991. The Bundesbank said last week that Germany's economy is likely to shrink for a third straight quarter in the three months through December and will contract 0.8% next year, the worst performance since 1993. German business confidence slumped to the lowest level in almost 16 years in November and factory orders plunged 6.1% in October from September. German exports declined 0.5% in October from the previous month.

MAN AG, Europe's third-largest truck maker, said on Dec. 3 it is bracing for a “very difficult” 2009. BASF SE, the world's largest chemicals company, on Nov. 19 lowered full-year profit targets for a second time, saying demand has dropped “significantly” since the end of October. MAN AG, Europe's third-largest truck maker, said on Dec. 3 it is bracing for a “very difficult” 2009. BASF SE, the world's largest chemicals company, on Nov. 19 lowered full-year profit targets for a second time, saying demand has dropped “significantly” since the end of October.

The Pound (Gbp/Usd) fell 130 pips during the Asian and the European sessions after bouncing off the 20-day moving average on Monday. Furthermore, cable looked to be gaining downward momentum as the European session progressed, erasing most of yesterday's gains. The pair didn't rise with the euro in N.Y. and fell to a record low against the single currency. It fell to the dollar on the day as equities declined.

U.K. house prices fell by 7.4% from October 2007. The release was higher than what analysts had predicted. The average price of a home stood at £203,539 in October 2008. The U.K. manufacturing output decreased in September by 1.4%, compared with analyst expectations of -0.6%. Decreases were seen in 10 out of the 13 industries, having the biggest declines in the paper, printing and publishing industries and the basic metal and metal products. The U.K. deficit widened in October to £7.8 billion, more than market expectations of £7.5 billion. The previous number was revised higher, from a deficit of £7.5 billion to £7.4 billion. The deficit on trade in goods was £7.8 billion, compared with the revised deficit of £7.4 billion in September

The Aussie (Aud/Usd) weakened during the overnight session, fall 130 pips, almost erasing all the gains made one day earlier. The aussie is caught between the 20 and the 50-day simple moving averages, which have both proved to be important swing points in the past. The pairs trading pattern followed the euro and the pair closed lower as stocks were sold.

Business confidence in Australia has plummeted to -30 in November, a new record low, falling from a -29 in October. The business conditions index declined to -17, the lowest reading seen since 1992 as the trading index decreased to -15 and export sales fell to -11. The profitability index decreased 5 points to -18 and employment by 6 points to -17. Overall, these are the lowest reading seen from the National Australia Banks index.

The Cad (Usd/Cad) has struggled to produce strong moves overnight, with low volumes and momentum hard to establish, as the market waited for the BOC's interest rate decision. The central bank was expected to cut 50 basis points to 1.75%. On Friday, the cad tested the 1.30 area, but now the pair trades some 500 pips lower. The pair rose as traders speculated the BoC would make a larger rate cut than expected, breaking the 1.2700 level, but declined thereafter as crude futures fell 3.68%.

Acknowledging the Canadian economy "is now entering a recession as a result of the weakness in global economic activity," the Bank of Canada today lowered its target overnight rate by 75 basis points to 1.50%. Officials also left the door open for further interest rate reductions, saying "the recent declines in terms of trade, real income growth, and confidence are prompting more cautious behaviour by households and businesses. All of these factors imply a lower profile for core inflation than had been projected at the time of the last Monetary Policy Report in October."

The Swissy (Usd/Chf) strengthened considerably during the Asian session but once it hit the 1.2100 area, the pair consolidated and moved side-ways. At the start of the Asian session, the pair bounced off the 20-day simple moving average, which is continuing to provide strong support. The pair declined in N.Y. but found support at 1.2000.

In November, Unemployment in Switzerland rose to 2.7%, higher than market expected. Previously, the unemployment rate remained stable near 2.5% for a long period. The released number, shows the Swiss labor market continues to be resilient in the face of the credit crunch, however, a low unemployment rate can generate some wage inflation

The Yen (Usd/Yen) traded on low volume during the overnight session. The pair fell 40 pips, down to TheLFB S1 (92.35) in late Asian trading but could not break significantly lower. The yen moved in-line with the S&P futures, which showed a negative start on Wall Street. The pair declined in N.Y. as equites were sold, falling below 92.

The Japanese economy contracted to 0.5%, which is below the expected forecast of 0.2%. On an annualized basis, the final GDP decreased by 1.8 percent that was also lower than the 0.9 percent decrease that had been expected. The first recession to hit Japan since 2001 is increasing as companies' slow production, while cutting jobs and spending with the anticipation that exports will fall further. With the threat of the first global recession seen in decades, economists are expecting at least another two or three quarters of negative growth to come out of Japan as exports slow.

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

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