Currency Pair Overview

Overall: The currency market continued to buy dollars in the overnight session. Amazingly, the pound managed to post some small gains even though until now it has been sold at a strong pace, touching a record low both against the euro and the swissy, and a six year low against the dollar. Things reversed about three hours before the Fed released its minutes of the Dec. 16 meeting, with the pound making a 300 pip advance.

In U.S. economic news, factory orders continued to weaken in Novmeber, pending home sales fell to their lowest level since 2001 and the ISM said the service sector contracted for a third straight month in December, albeit at a slower pace.

The Euro (Eur/Usd) extended the declines seen in the last few days during the overnight session. The pair fell an additional 200 pips, breaking below the 100-day moving average. The move reversed in N.Y. in the few hours leading up to the Fed's minutes.

The service side of the economy in the Euro-area has been in contraction for the last seven months according to the latest PMI release. The released number of 42.1 is near a multi-year low as the economy is struggling to show any signs of growth amid the global slowdown.

The strong declines seen lately in the commodity markets, especially in the crude oil's valuation, has caused the Euro-area CPI go under the 2% target rate faster than any one would have thought a few months back. The release for the month of December shows the CPI read standing at 1.6%, despite earlier this year the CPI hit a record rate of 4.0%.

The Pound (Gbp/Usd) lost in the Asian session nearly 150 pips, but recovered, during the European trading hours, almost every pip lost earlier. It made a very strong 300 pip move against the dollar before the fed minutes inspite of very weak U.K. economic reports.

The consumer confidence for the U.K. fell in December to 47 despite the government's announcement of a fiscal stimulus package worth GBP20 billion and unprecedented interest rate cuts by the Bank of England. U.K. house prices have continued to decline for fourteen months, reaching 15.9% year-over-year. In December, prices declined a record 2.5%, much more than analysts' had predicted. The average price for a U.K. house in December reached £153,048. The U.K. Service PMI came in at 40.2, better than market expectations. The release shows the service side of the economy has contracted for more than eight months, at the fastest pace seen in the last decade

The Aussie (Aud/Usd) fell overnight down to TheLFB S1 (0.7060), moving in-line with the overall market. The pair declined close to 80 pips, after forming a doji-star, near an important resistance level, yesterday. However, those moves reversed and the aussie rose to the highest level since Oct. 14.

The Australian AIG services sector activity has declined for a ninth consecutive month in the services sector for December showed the Australian Industries Group's report. The index rose marginally, by 1.5 points to 39.3 but remained below the key 50.0 level which separate's expansion from contraction. In seasonally adjusted terms, only one sector saw expansion, health and services, for the first time in five months. Sales fell for a seventh month while activity fell even faster for accommodation, cafes and restaurants, as well as the personal and recreational services sectors

The Cad (Usd/Cad) gained 70 pips overnight to just below the neutral pivot point (1.2000). In the last two days, the Canadian Dollar has been helped by the Crude oil market to strengthen against the dollar. The pair was basically flat in N.Y. as crude's price was little changed.

The Swissy (Usd/Chf) rose another 80 pips in the overnight session, totaling a little more than 600 pips gained in the last 4 trading days. The pair reached its highest level since Dec. 17 after forming a bullish pin bar on Dec. 29.

The Yen (Usd/Yen) managed to break above the 93.50 area in the overnight session where the pair topped one day earlier. The yen is approaching the 50-day simple moving average for the first time since September 2008. The pair rose with U.S. equity markets until about three hours before the Fed released the Dec. 16 meeting minutes.

The Japanese monetary base came in with a reading of 1.8 percent year over year in December. This is slightly lower than November's reading of 1.9 percent, but still in line with analysts' expectations. Banknote circulation in December was up 0.5 percent. Meanwhile, coins added 0.4 percent. Seasonally adjusted, the monetary base increased to 90.45 trillion yen, or 0.1 percent.

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

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