Dollar Shows Continued Strength
Overall, the currency market continued to buy dollars in the overnight session. Amazingly, the pound managed to post some small gains in the overnight session, 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.
The strong momentum from the European session is very likely to continue during the U.S. session, as the economic calendar yields some very important releases.
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. For the moment, the euro is trading near the lowest value seen in the last three weeks.
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. The pound is managing to stay afloat near a six-year low, even though the euro and the swissy tumbled in the last few days.
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. Right now, the pair is trading between the 20 and the 100-day simple moving averages.
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, and is now trading 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. If the cad manages to decline for the third day, it may touch the lowest value since November.
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. For the moment, the swissy is struggling to break above the 20-day simple moving average, just below the 1.2000 resistance level
The Yen (Usd/Yen) managed to break above the 93.50 area, where the pair topped one day earlier. The yen is approaching the 50-day simple moving average for the first time since September 2008. Furthermore, the yen is trading near a one month high.
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.
Stimulus Plan Stimulates Markets
Current Futures: Dow +5.00, S&P +1.00, NASDAQ +0.50
European Trade: Overnight markets are advancing, helped by the government interventions and stimulus plans. European shares opened higher for the sixth consecutive day, while Asian markets closed for the ninth day in the green. U.S. futures were unmoved during the overnight session.
The Nikkei gained 37.72 points (0.42%) to 9,080.84. The Australian S&P/Asx rose 55.70 points (1.51%) to 3,742.70. In Europe, the best performing major market from 2008 - the U.K's Ftse - traded mixed, gaining only 3.91 points (0.09%), while the German Dax rose 14.05 points (0.28%).
President Elect Obama met yesterday with spokespersons from both parties to try to hammer out an agreement on the stimulus plan. It is said the net worth of the plan would reach nearly $800 billion, from which a rather large part would come from tax-cuts. Sources have said that Mr. Obama plans to give tax breaks of $500 dollars per person.
Tax-cuts are useful because the money usually gets in the consumer's pockets very fast, unlike public spending which needs up to a year to affect the real economy. However, consumers may simply deposit the tax break money, not helping the economy in any way. Furthermore, as was the case with the $600 rebate checks, if the tax break money is spent on foreign made goods, it will have a limited effect over the real economy.
Crude oil advanced as international tensions escalate. However, crude oil for January delivery fell $1.00 overnight to $47.65.
Gold extended the decline seen one session earlier, on dollar strength. Bullion for immediate delivery lost $12.50 to $843.40.
Previous Asian trade: Asian markets opened higher for the ninth consecutive day, despite that the U.S. markets closed in the red yesterday. Shares in Asia are pulled higher by the yen's decline, helping factories export their products cheaper and buy commodity stocks, as oil is trading just under the $50 dollar benchmark.
A report released yesterday showed that auto-sales fell to the lowest level in the last 16 years - auto sales plunged 36% in December. Usually, December is the month of gifts, and an important part of car sales projections are based on the Holiday sales. This year, almost every car company missed its year end sales target. As the U.S. car manufacturers did not have enough problems, Chrysler's sales plunged more than 50% in December. Also in 2008, GM's and Ford's sales plunged to the lowest level seen in last five decades.
Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com
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