Risk-Aversion Is The Theme. Dollar Seems Unstoppable

Overall, the market is back into a risk-aversion mode. The dollar was unstoppable in the overnight session except against the Japanese yen, as the dollar index advanced 150 basis points overnight. Almost every major pair, except for the aussie, are now trading either at a record low or high for the current year. Heading into the U.S. session, volatility seems likely to continue.

The Euro (Eur/Usd) has tumbled 350 pips since the new trading day started. The pair fell to TheLFB S2 (1.2620), after the pair strengthened yesterday for the first time in more than a week. The European PMI service shows that both the service and manufacturing side of the economy are still in a contraction phase. This is the fifth 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 49.7, showing the industry has contracted since the prior month, while the manufacturing index came at 43.3. It seems that the manufacturing side of the economy is being affected much more by the global slowdown than the service side, even though this month was the first time that the service side of the economy dropped below the 50.0 read, into the contraction phase.

The Pound (Gbp/Usd) plummeted 680 pips in the overnight session, hitting the lowest level seen in more than 5 years The pound made a new low for the current year, extending the declines seen this week to almost 1800 pips. The pair weakened ahead of the GDP report and continued to move lower after the report was released. In the third quarter, the U.K. economy decreased by 0.5%, a much stronger decline than the expected 0.2%. In the second quarter, the U.K. economy posted a 0.0% read. The release shows the U.K. economy is facing dramatic slowdowns and a full blown recession may now be unavoidable. The latest statistical data coming from U.K. suggests the slowdown will continue into the fourth quarter, and beyond. This is biggest recorded fall since 1990.

The Aussie (Aud/Usd) fell 360 pips since the Asian session started, reaching TheLFB S3 (0.6390). This level has been a very important swing point in the past, with the aussie trying to break lower for almost 3 weeks. If it does break below the 0.6300 level, the pair will reach the lowest point since April 2003.

The Cad (Usd/Cad) gained a whopping 300 pips during the overnight session, in a period when the pair barely moves more than 40 pips. The pair moved higher without any resistance, until it run into the 1.2750 area, where it also topped out on Thursday. So far this week, the cad has gained 900 pips.

The Swissy (Usd/Chf) gained 180 pips overnight and has finally managed to break above the 1.17 resistance area. Now, the swissy trades just below TheLFB R2 (1.1755), nearing the highest point reached in the last year of trading

The Yen (Usd/Yen) is extending the declines from the last few days shedding approximately 300 pips overnight, reaching the lowest point since 1995. The market is being driven by very strong risk-aversion right now, causing the pair to tumble almost 700 pips this week, breaking under the March's low.

The Great Depression Revisited?

Current Futures: Dow -550.00, S&P -60.00, NASDAQ -82.25

European Trade: Global stocks are in the midst of setting record losses. Currently, the market is in a strong selling mode. The market is acting as though the entire world is heading towards another Great Depression; the only difference is now the Government actually tries to prevent this from happening.

During the overnight session, the Asian equity markets plunged at a record pace. The Nikkei tumbled 9.60% overnight, totaling a 12% drop this week. The Japanese index is trading near the 7,600 level, where it last found a bottom back in 2003, after the market plunged for 13 years from the top reached in 1990 at 40,000 points. In 1982, the Nikkei had a similar value to the current one. The Australian S&P/Asx fell 105.00 points (2.64%) to 3,869.40, touching a 4-year low. The South Korean equity index, the Kospi, plunged 20.5% this week, the most in the last two decades.

European shares opened lower and continued the negative momentum.. The German Dax is already down 329 points (7.29%) to 4,190.29 while the U.K. Ftse fell 242.37 points (5.93%) to 3,845.46. U.S. Futures are also trading deep into negative territory. The last time the U.S. futures were so low, with the S&P 500 down by almost 6.2%, the market plunged at a record pace.

Today the VIX index, also known as the fear index, will probably set a new record. Treasuries continue to post big gains as the market sells every asset for the safety of U.S. debt.

Crude oil declined, even though OPEC members gathered to discuss cutting supply. Crude oil for November delivery fell $1.59 (2.34%) to $66.25.

Gold is again testing the $700 benchmark. Bullion for immediate delivery fell $12.90 (1.80%) to $701.80.

Previous Asian trade: For a third day in a row, Asian markets are trading in the red as concerns about a prolonged global recession exponentially reducing investors' confidence in the market.

After the recent developments in the world's markets, who wouldn't be in the same position? U.S. foreclosures filings are up 71% in 2008, compared with the similar period from one year earlier, the housing market is far from finding a bottom and the recent trend for most corporations is to announce job cuts. The outlook appears much grimmer than before, making the market expect a cut even from the Bank of Japan, which has its interest rate at 0.50%. .

If the developed countries are heading for a recession right now, it seems the smaller ones are heading towards bankruptcy. The list of countries lining up at the doors International Monetary Fund to access funds grew in the last month. Iceland, Pakistan, Hungary, Belarus and Ukraine are each asking for emergency loans, even though a few weeks ago these countries were not even close of doing so. In the same time, Russia had its debt rating reduced by Standard & Poor. The list of countries looking for a loan (meaning bailout) will probably increase as money markets make funding more expensive than ever.

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

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