Euro Plummets vs Dollar and Pound to Start the Week

EUR Sentix Investor Confidence and Swiss SVME PMI Improve from Record Lows

We start with some fundamental data from Europe. The Sentix investor confidence index snapped a 7 month streak of drop to post its first improvement for the January period. The index rose to -34.4 from its record low of -42.3 in December. Investor sentiment was boosted by interest-rate cuts and government measures that should work to stimulate the Euro-zone economy. In Switzerland meanwhile, the SVME PMI also rose from its all time low, following 8 straight months of declines. Expectations were for a lower reading. Still, a figure below 50 represents contraction in manager's purchases.

UK Construction Activity Falls Further, US Construction Spending Down Less Than Expected

In the UK, the construction PMI fell to 29.3, reflecting a deepening the of contraction in that sector. With the housing market reeling in the UK, the construction industry has gone into hibernation. In the US, construction spending for the month of November fell 0.6%, but this was better than forecasts. The report showed that gains in the commercial and government buildings partially cushioned the slump in residential real estate.

EUR/USD - Euro Plummets 400 Pips to Start the Week

Turning to our market highlights for the day, we see a very sharp drop in the Euro-Dollar pair, amounting to more than 400 pips from high to low. The main theme today that fueled Dollar strength was speculation that President-elect Barack Obama's fiscal stimulus plan will help the US recover from its recession. More details were released about the plan, including a larger than expected amount that will go towards tax breaks for individuals and companies. The Euro-Dollar pair slid from its high near 1.3960 to test 1.3550. That put the pair at a 3-week low.

EUR/GBP - Pound Has Biggest One-Day Gain vs Euro Since Euro's Inception

The Euro also suffered its biggest one day loss against the Pound, also a slide of nearly 400 pips. Such a sharp fall will most likely stall the pair's climb to parity which we saw the last couple of weeks. Expectations increased that the ECB's hawkish language about slowing down their pace of interest rate cuts will be altered as negative news pours in from the Euro-zone and inflation keeps slowing. Comments from the ECB vice president echoed those sentiments. The Pound was boosted by plans by Bank of England Governor Mervyn King to expand the 200-billion pound program that allows banks to swap illiquid securities for government debt.

GBP/USD - Pound Gains on Dollar on BOE Plans

The Pound-Dollar pair rose about 270 pips from its low in favor of the Pound, making the Pound the strongest currency out of the three we have mentioned so far. The pair has established a clear line of support near the 1.44 level, and is now moving back into the consolidation zone we saw two weeks ago between 1.47 and 1.48.

USD/JPY - Dollar Up On Yen as European ad Asian Stocks Advance

The Dollar-Yen pair shot up 150 pips today, mainly in European trading as stocks in both Asia and Europe advanced, increasing risk appetite. Commodities were up helping oil producers. Today's gains put the pair about 230 pips higher than the resistance turned support level near 90.90. US equities traded back and forth in morning trading but fell into the red as figures on domestic vehicle sales rolled in. That stalled the greenback's gains near 93.50.

USD/CAD - Loonie Surges on Higher Oil Prices

In our final pair, we focus on the US Dollar-Canadian Dollar which saw a steep drop as oil prices rose. By the NY session oil prices were up $2, putting the price of a barrel at $48.50. The Loonie took advantage gaining almost 325 pips in NY trading, after hitting a high near 1.2225 prior to the NY open.

Upcoming Releases

The fundamental docket heats up for the next trading session. Tonight, we get services data from Australia, and services data from the Euro-zone and UK overnight. The UK will also post housing prices data while the Euro-zone releases its flash estimate of annual CPI.

Tomorrow, Canada releases its producer price index and the US has 4 key releases, the ISM non-manufacturing index, pending home sales, factory orders, and the FOMC meeting minutes

Capital Market Services, L.L.C.
www.cmsfx.com

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