Major Currency Pairs Reverse Recent Trends

Overall, the majors managed to reverse recent trends overnight, at least for the moment, and the Dollar is giving back gains seen over the past 2 days. The one exception is the yen, where the dollar is strengthening against the Japanese currency as overnight equity markets are making solid gains. The economic calendar for the final trading day of the week is very light, with no important releases scheduled that could affect the overall value of the dollar.

The Euro (Eur/Usd) advanced 150 pips during the overnight session and is now trading just above 1.2600. The pair started the upside move during the Asian session, but only after it re-tested the low reached on Thursday.

The European PMI service shows that both the service and manufacturing side of the economy are still in a contraction phase. This is the sixth consecutive month when the two indexes have shown a read below the 50.0 level, which separates contraction from growth. The German service PMI was released at 46.2, showing the industry has contracted during the last two months, while the manufacturing index came at 36.7, much lower than expected. It seems that the manufacturing side of the economy is being affected much more by the global slowdown than the service side.

The Pound (Gbp/Usd) for once, followed the direction of the overall market and advanced against the dollar. The pound traded flat during the Asian session, but in early European trading, the pair strengthened and is currently trading above 1.4950, higher than Thursday's high, after having gained 240 pips since Thursdays U.S. session close.

The Aussie (Aud/Usd) rose 150 pips during the overnight session, after it was announced the Reserve Bank of Australia intervened in the currency market, to support the falling Australian dollar. At the start of the trading day, the aussie was trading near a five year low, but has recovered overnight and is currently trading above 0.6259.

The Cad (Usd/Cad) has been unable to add to recent gains, overnight, running into a brick wall at the 1.3000 level, and losing 200 pips. The trading volume has been light and the pair has traded in line with other major currency pairs that have seen the dollar weaken. Things may change later today as Canada will release CPI numbers at the start of the U.S. session.

The Swissy (Usd/Chf) struggled to break higher during the European session, testing 1.2300, before tiring and moving lower. In the last few days, the swissy has continued to stair step higher, adding to the previous day's gains, despite the trading range continuing to be one of the smallest of the majors.

The Yen (Usd/Yen) is once again moving higher, reflecting the strong gains in the U.S. futures markets. During the Asian session, the pair tested the low reached on Thursday, but started to trend higher soon after. During the European trading hours, the pair continued to strengthen and is currently 150 pips higher than Thursday's U.S. session close.

The Bank of Japan decided unanimously to keep the Overnight Call Rate at 0.30%. This comes after the BoJ had cut rates at the last meeting from 0.50% to 0.30%, while the market expected a full 25 basis points cut. With the lowest rate amid industrialized countries, economists argue that the low interest rate will not provide strong enough relief to the Japanese economy, and that the central bank has mostly depleted its powers to influence the business cycle by using monetary policy. The Bank of Japan announced tonight that they are planning to expand their collateral base (the financial assets banks pledge for short- term loans) to also include corporate bonds.

Markets Trade In Positive Territory On Citigroup Rumors

Current Futures: Dow +208.00, S&P +25.65, NASDAQ +35.50

European Trade: Asian markets strengthened overnight, snapping a four-day slide, while U.S. futures are currently pointing to a very strong open on Wall Street this morning.

The reason traders turned to buying stocks was speculation that the government will intervene again to support the falling stock market, and additional upside momentum came on rumors that Citigroup is looking for potential buyers. Right now, the bank is trading near the $6 mark, more than 80% lower than its value at the beginning of 2008. For a while, Citigroup was seen as the largest U.S. bank, but strong declines have caused it to fall to fifth place. So far, company officials have declined to confirm any of the rumors. Earlier this week, Citigroup announced it would cut about 50.000 jobs, in order to reduce costs.

The financial industry has shed approximately 200.000 jobs this year, and analysts expect this number to be much larger by the next year, as write-downs in the banking industry continue. So far, financial companies have written down almost a trillion dollars in bad loans. Bonuses and other additional benefits have also dropped in the industry.

In the overnight session, the Nikkei gained 207.75 points (2.70%) to 7,910.79. In Australia, the S&P/Asx rose 63.60 points (1.90%) to 3,416.50. European shares are also trading in the green, as the Dax has gained 52.27 points (1.24%). The U.K. Ftse rose 41.94 points (1.08%) since the new trading day started.

Crude oil is posting small gains, after making a new low for the current year. Crude oil for December delivery gained $1.10 to $49.90.

Gold is advancing in response to dollar weakness. Bullion for immediate delivery gained $12.60 to $758.00.

Previous Asian trade: Asian shares are down for the fifth consecutive day on concerns the global recession will last much more than expected. U.S. markets extended the declines seen in the last few days, touching a multi-year bottom

Yesterday, a report showed the U.S. weekly unemployment claims approach a 26-year old high. The report said that 542.000 new persons were looking for unemployment benefits in the week to Nov 8. There were 4.012 million staying on benefits, and this number is expected to increase in the coming months. A report showed that manufacturing in the Philadelphia region reached an 18-year low. Because of these very poor releases, investors flew to the safety of treasuries, sending the longer-term yields to record low levels.

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