Major Currencies Fall On Rate Cut Expectations

Overall, the dollar and the yen continued to advanced during the European session, as the market remains in a risk-aversion mode. So far, the strong declines have been seen in the pound and aussie the two currencies out of three that the market expects the central banks to cut the interest rates later this week. The third currency with a rate-cut decision this week is the Euro.

The Euro (Eur/Usd) moved approximately 80 pips overnight, trading below Friday's closing price. The pair bottomed at the 1.2620 area in the Asian session, but again tested the same level during the European trading hours. If the market remains in risk-aversion mode, chances are the Euro will re-test the current low of the year.

The PMI release shows the euro-area manufacturing side of the economy has contracted for six consecutive months. The release number of 35.6 is slightly smaller than analyst expectations of 36.2. The Euro-zone PMI survey is now standing at a record low, pointing out that the economic contraction may be stronger and even more prolonged than previously thought. This release adds pressure for a 75 basis points rate cut at the ECB's meeting this week.

The Pound (Gbp/Usd) fell 200 pips during the overnight session and broke below the 20-day moving average. The pound found a base near TheLFB S2 (1.5165). Most of the moves came during the European session, as traders start to look ahead to Thursday's interest rate decision and expect a rate cut.

Net lending to individuals fell in October from one month earlier. The number came in at £1.3B, under analysts' expectations of £2.4B. The number released for the month of September was also revised lower, to £1.8B. The UK Manufacturing PMI contracted for a seventh consecutive month in November, indicating a strong recessionary period the U.K. economy is facing. According to the PMI report, the 34.4 read shows the manufacturing sector is in the biggest contraction phase seen in the last decade

The Aussie (Aud/Usd) has posted strong declines since the new trading week began. So far, the pair has fallen 100 pips, down to TheLFB S2 (0.6440). The selling comes as traders get ready for the RBA to announce its interest rate decision later tonight, in which it is expected to cut 75 basis points.

The inflation estimate for Australia, released this evening by TD Securities, decreased by 0.6 percent month over month for November. The annual inflation rate is now at 3.0 percent which is below the Australian Bureau of Statistics current 5.0 percent inflation level. The manufacturing sector in Australia has fallen to 32.7 in November from the previous reading of 40.4 in October. This is the lowest level the index has seen in 2008. Five out of the seven components have declined with the sharpest decrease seen in exports and production

The Cad (Usd/Cad) is trading just below the 1.2450 area, where the pair ran into strong resistance in the recent past. During the overnight session, the pair traded mostly flat, after advancing immediately after the Asian session opened.

The Swissy (Usd/Chf) could not find muster any momentum during the overnight session and traded along the neutral pivot point (1.2100). Some analysts are saying that, this week, the SNB may cut rates with the BoE and ECB, like it has done in the past, even though it is not scheduled.

The Purchasing Managers Index shows the industrial sector contracted in Switzerland for the third consecutive month. The PMI number was released at 35.2, versus analyst's estimates of 45.5. The Swiss PMI confirms that the economy is taking a similar path as the Euro-area and the U.S. economies, which are near the recession level. The index sits at multi-year lows, showing that inflationary pressures dry up very fast.

The Yen (Usd/Yen) moved in a tight range during the Asian trading hours, and only after the London open was the pair able to break below the support level, falling to TheLFB S3 (94.55). In the last few days, the yen has traded with a very small ATR (average trading range), and almost no momentum.

The Japanese cash earnings decreased in October by 0.1 percent which was below expectations of a 0.1 percent increase following Septembers 0.2 percent increase. The Japanese Ministry of Health, Labor, and Welfare in Tokyo also reported that overtime pay was down 3.1 percent while bonuses also decreased by 6.2 percent from one year earlier.

Equities Down, Dragged Lower By Commodity Stocks

Current Futures: Dow -125.00, S&P -15.50, NASDAQ -12.00

European Trade: European stocks are extending declines seen earlier during the Asian session, as concerns about the state of the global economy erodes investors appetite for riskier assets, which include equities for now.

During the Asian session, the Nikkei fell 115.05 points (1.35%) to 8,397.22, while the Australian S&P/Asx slipped 61.30 points (1.64%) to 3,681.20. Asian stocks have shed almost 50% of their value this year. In Europe, the Ftse fell 63.15 points (1.45%) down to 4,225.86, while the German Dax declined 89.83 points (1.92%) to 4,5779.61. In both the Asian and European markets, the biggest declines were observed in the commodity stocks, which fell because of OPEC's decision to delay the production cut.

A report showed today that car sales in Japan dropped the most in the last three decades. Car sales drop a whopping 27% from just one year earlier. However, in Europe things are even worse, as in Spain, car sales dropped 50% from one year earlier. Car sales in Spain dropped for seven consecutive months, after the unemployment rate rose full percentage points in just a few months, amid a strong housing crisis. Declines in car sales are seen all around the globe, However, so far only the U.S. based manufactures are mentioned in bankruptcy talks, So far.

Crude oil fell in the overnight session. Crude oil for December delivery slipped $1.90 to $51.60.

Gold declined from the first minutes of trade after the opening bell. Bullion for immediate delivery fell $12.50 to $802.80.

Previous Asian trade: After last week the global markets had the strongest gains seen in the last few years, now the Asian shares opened the new trading session in the red, on concerns the recession might be deeper than previously thought.

In the U.S., reports after the infamous Black Friday show that retail sales had grown by a weak 3%, the smallest gain seen in the last year. Black Friday is the unofficial open of the holiday shopping season. This period is usually a very good gauge of the retail activity, since a large percentage of the industry's profit comes from this period. A bad holiday shopping season may equal bankruptcy for some retailers, in the current conditions.

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