Dollar Lower As The Yield Differential Increases, For The Moment

Overall, the dollar weakened in the overnight session, a move that started after the Fed cut the overnight interest rate. With the Japanese yen being the only exception, which weakened in response to strong U.S. Futures, the major currencies advanced against the dollar, shedding some of the declines experienced during the last few weeks. The U.S. session starts the day with the mid-level Advance GDP release.

The Euro (Eur/Usd) surged 250 pips during the overnight session to TheLFB S2 (1.3220) and at the same time tested the 20-day moving average. The euro has strengthened for three consecutive days, during which the pair has gained 750 pips.

Consumer confidence in the Euro-area fell to -24, more than expected. The index is just just a few points above the bottom reached in early 2003. The last time the euro-area consumer confidence report was above the zero benchmark, pointing to an optimistic feeling among consumers, was at the end of 2000.

The unemployment rate in Germany declined by 26K, seasonally adjusted, larger than market expectations. The previously released number, for the month of September, was left unrevised at -29K. Although the German economy is giving full signs of a major slowdown, this is not reflected in the labor market, which sees the lowest unemployment rate in the last 16 years.

The Pound (Gbp/Usd) continues to strengthen against the dollar, adding to gains seen over the past two days. The pair struggled in the European session to break above TheLFB R1 (1.6600), and will continue to move cautiously until the advanced GDP number is released.

U.K. house prices have continued to decline for twelve uninterrupted months, reaching -14.6% year-over-year. In October, prices declined by 1.4%, more than analysts' had predicted. The average price for a U.K. house in September reached £158,872. Analysts believe the bottom in the housing market has not yet been hit, saying the central bank will continue to cut rates, in order to support the economy.

The Aussie (Aud/Usd) has not been able to find the momentum to break above TheLFB R1 (0.6890) and the 20-day moving average. After the RBA said publicly it had intervened in the currency market, the aussie strengthened gaining approximately 800 pips in the last few days.

The leading index for Australia increased to 0.4 percent, which was in line with July's 0.4 percent figure. The coincident index also increased by 0.1 percent in August, but is down from July's 0.2 percent result. The report from the conference board stated, 'All in all, the recent behavior of the composite indexes still suggests that economic growth will be slow in the near term.'

The Cad (Usd/Cad) is declining for the third consecutive day, losing approximately 300 pips overnight and testing the 20 day simple moving average, which held as support. The pair has strengthened for four consecutive weeks and has gained approximately 1700 pips in that time frame, but is on track to post a losing week, this week.

The Swissy (Usd/Chf) fell in the early Asian session, and since then the pair moved in a tight range, moving slightly higher. On the downside, the 50-day simple moving average acts as a strong support level and was tested overnight, but as has been the case recently, held strong.

The Yen (Usd/Yen) advanced about 100 pips until it ran into TheLFB R1 (98.55) and has since struggled to break above that resistance level. Even if the pair does manage to break higher, the pair will soon run into the 20-day moving average, which the yen has failed to break for almost 2 months.

Global Equity Markets Higher After Fed Rate Cut

Current Futures: Dow +270.00, S&P +24.40, NASDAQ +31.00

European Trade: The rate cut decision from the Federal Reserve gave strong upward momentum to global equity markets. Equities and commodity market rose during the overnight sessions, as investors speculate the rate cut will spur demand and growth in the world's largest economy.

Even though October is still set to become the worst month for the equity markets on record, things turned to the bright side. In the last three days, the Nikkei has risen the most on record in the last 38 years, while the MSCI Asian Pacific surged the most since 1987, when the index was first created. U.S. Futures are also pointing to a strong start on Wall Street this morning; however, the GDP report scheduled at 8:30 may change the outlook.

Equities in Asia were boosted after the People's Bank of China cut the key interest rate for the third time in two months, and a Japanese newspaper reported the Japanese Government is preparing a $51 billion stimulus plan. In Europe, stocks in most industries rose, helped by the European Commissions' decision to announce that work is in progress toward a common plan for the Euro-area to deal with the credit crunch after-shocks.

The Nikkei rose 341.67 points (4.16%) to 8,553.57, while the Australian S&P/Asx gained 118.00 points (3.07%) to 3,963.60. The German Dax rose 65.86 points (1.37%) 4,874.55. The U.K. Ftse rose 13.07 points (0.31%) to 4,255.61

Crude oil rose in the overnight session, as it was speculated the rate cut will boost oil consumption. Crude oil for December delivery rose $2.09 (3.10%) to $69.59.

Gold rose as investors are looking to diversify their portfolio. Bullion for immediate delivery gained $20.50 (2.72%) to $774.50.

Previous Asian trade: For a third day in a row, Asian equity markets are trading in the green, as the rate cuts assure the markets the government and the central banks take every possible measure to help the economy weaken the credit crunch's effects.

Yesterday, the Fed cut the overnight interest rate by 50 basis points, down to 1%. The move was in-line with what the market expected, even though the U.S. equity market fell under the breakeven line after the release. For now, U.S. futures are trading into the green, having the S&P advance 16.10 points. In the statement that followed the release, the bank said the business conditions have deteriorated, while inflation is very likely to slowdown. Adjusting from the statement content, analysts believe the Fed will continue the rating cut cycle. In the last day, the Fed Funds Rate was set at 0.69%, compared with the targeted rate of 1.50%.

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

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