Dollar Mixed Ahead Of The U.S. Open

Overall, the market retraced some of the recent dollar strength during the overnight session. However, as the market moves towards the U.S. session open, it seems the dollar is starting to advance once again.

The Euro (Eur/Usd) is trading, for the first time in more than a week, in positive territory. In the early European session the pair advanced as much as 130 pips, even though, the pair was unable to hold onto all of the gains. The dollar strength seen from Monday's trade has caused the relative strength index trade slightly below the oversold line.

The Pound (Gbp/Usd) advanced during the overnight session, gaining 200 pips at one point, however, as the news spread that two well known U.K. banks will receive government funding, the pair moved lower. Now, the cable is trading virtually unchanged from the opening price point of the Asian session. The U.K. manufacturing output decreased in August by 0.4%, compared with analyst estimations of -0.2%. Decreases were seen in 10 out of the 13 industries, having the biggest declines in transport equipment, which fell by 2.3%.

The Aussie (Aud/Usd) had a volatile overnight trading session, after the Australian central bank cut the interest rates much more than expected. The Reserve Bank of Australia continues the cutting cycle as the economic expansion cools and the business cycle peaks. The central bank cut for a second time this year, after the bank cut at the beginning of September, 25 basis points to 7%. Despite the analyst expectations of a 50 basis points cut, the Reserve Bank Board meeting had decided to cut a massive 100 basis points. The pair immediately responded to the news release, falling 170 pips, however, the pair quickly recovered. Since the Asian session started, the aussie has advanced 50 pips, but has traded in a wide 330 pip range.

The Cad (Usd/Cad) is trading lower for the first time in 8 days. The pair has dropped 55 pips during the overnight sessions, moving along the neutral pivot point (1.0975). Crude oil, the commodity that backs the pair posted gains today, dragging the cad lower. There are no economic releases scheduled from Canada on Tuesday

The Swissy (Usd/Chf) fell 60 pips since the new trading day opened and is now testing the 1.1400 area, which provided strong resistance during the latter part of last week. The pair has experienced volatility intra-day, moving between the neutral pivot point (1.1415) and the high of the previous session.

The Yen (Usd/Yen) moved higher during the overnight sessions, after the Bank of Japan maintained the monetary policy rate at the current 0.50%. The Bank of Japan has kept the Overnight Call Rate unchanged at 0.50%. It is the 23rd straight month the bank has kept rates on hold. In the bank's words, the economy has now become 'sluggish' in the face of high commodity prices. In the past, the bank had announced its intention to raise interest rates, although this will happen only when the economy is able to support such a move. The pair gained 180 pips since the Asian session started, from which, almost half came after the release. The Japanese Leading index fell to 89.3%, in August, in-line with market expectations. The leading indicator is based on 12 reports, from which most are made public before this release. Over the course of the last few months, the Leading index, suggested that the Japanese economy is weakening, due to international tensions.

A new U.K. Government intervention

Current Futures: Dow -10.00, S&P +0.40, NASDAQ +2.50

European Trade: The global equity markets seem as though they heading for another day of losses. During the Asian trading hours, the Nikkei fell 317.19 points (3.03%) to 10,155.90,closing near the lowest level in the last five years.

The Australian stock market, however, rose after the RBA slashed the Cash Rate by 100 basis points to 6% in the face of the global downturn. In Europe, markets opened stronger and traded for a short time above the break-even line, however, news that the U.K. Government will lend $79 billion to Barclays and Royal Bank of Scotland, moved the markets into negative territory. Because of the news release, RBS is off by almost 40%, while Barclays has fallen 10% so far. The major Europe indexes are trading lower led by financial institutions. The German Dax fell 8.98 points (0.17%) to 5,378.03, while the U.K. FTSE decline 20.42 points (0.44%) to 4,568.77.

Financial institutions in Europe have been hit as hard as the U.S. financial companies; In U.K., the Government was required to bailout Bradford & Bingley and take an active role in the takeover of HBOS. At the same time, in Germany, which is seen as the European powerhouse, the Government had to guarantee the deposits of the financial institutions, in order to avoid a bank run. In Iceland, another bank had been saved by intervention from authorities, while in Russia, trading has been halted for the ninth time in the last three weeks, after the market index fell 19%.

Crude oil rose for the first time in five days, retracing some of declines seen recently. Crude oil for November delivery gained $2.13 (2.43%) to $89.94

Gold advanced during the last few trading sessions as traders see the precious metal as an alternative investment. Bullion for immediate delivery gained $9.50 (1.10%) to $875.70.

Previous Asian trade: Global markets are extending the losses from the last period, as the market sees no end in sight for the credit crises. The major equity markets posted impressive declines yesterday, having the DOW under the 10,000-point benchmark for the first time since 2004.

Problems in the credit market continue too. The Euro-LIBOR, tracking the cost of borrowing euros at the inter-banking level, rose to a new record for the seventh time in a row. At the same time, the cost of protecting against default, a corporate bond rose worldwide as traders anticipate some debt ratings will be cut. The cost of protecting a $10 million bond from Goldman Sach climbed 58.5 points to 460.5. This means a trader would have to pay $460,000 to insure a $10 million bond from default originated by the financial company.

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

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