Tight Ranges In The Overnight Session

Overall, the market moved in tight trading ranges during the overnight sessions. Compared with the last few days of trading, volume was also on the low end. However, once the U.S. session starts and more news about the financials/bailout plan emerge, volume and volatility are likely to pick up.

The Euro (Eur/Usd) is managing to hold above the 20-day moving average, after testing that level on Monday. During the overnight session, the pair, again, made a number of tests of that level, although it has so far failed to move lower. The euro’s valuation is also being affected by news that is starting to surface concerning European banks needing Government sponsored bailout. Euro Zone inflation was released in-line with analysts’ forecast. Expectations had been for a drop to 3.6% from 3.8%, unrevised, indicating that we might have reached a peak in inflation. Inflation in the Euro-Zone has been running at a 16 year high. Despite the lower read, it is too early to assume that inflation is no longer a problem

The Pound (Gbp/Usd) traded in tight 60 pips range during the Asian session and only during European trading hours was the pound was able to break higher. So far, the pair has gained 60 pips and now is testing the neutral pivot point (1.8110). The 20-day moving average has held as support, so far. U.K. current account deficit reached £11.0 billion in the second quarter of 2008, up from a deficit of £5.5 billion in the first quarter (revised down from £8.4 billion). The second quarter current account represents 3.0% of the U.K. GDP. The U.K. GDP remained flat during the second quarter of 2008, in-line with analysts’ expectations. From one year earlier, the U.K. economy expanded 1.5%.

The Aussie (Aud/Usd) continued to be somewhat volatile overnight. The aussie fell 70 pips in the first few minutes after the Asian session opened, but managed to recover and is now posting strong gains. The aussie has advanced 90 pips, trading just under the neutral pivot point (0.8100), reversing some of the losses from one day earlier. The building approvals from Australia were down 3.7 percent on the month. The trend estimate for total dwelling units fell by 1.1 percent and seasonally adjusted, fell 3.7 percent. Private sector home approvals fell 0.8 percent in August after falling 3.3 percent in July. Retail sales in Australia have increased by 0.3 percent for the month of August. All industries except other retailing had an increase in the trend, but industries with the largest increase were food, clothing, soft goods, cafes, restaurants, and takeaway food services.

The Cad (Usd/Cad) tested the 50-day moving average during the overnight session, after it had advanced 40 pips. However, the pair had no choice but to retrace some gained ground as the low volume environment during the Asian and European trading sessions have not allowed the cad to break significantly in either direction. Canada will release GDP numbers later this morning.

The Swissy (Usd/Chf) has continued to trade above the 50-day moving average, which has held strong as support over the past few days. The swissy has posted modest gains overnight, as the market awaits the U.S. session open and more news about the financials. The Swiss Consumption Indicator was released at 1.62, for the month of August. The release shows the Swiss consumption remains somewhat healthy, although the outlook is uncertain. Last month’s number of 1.85 was revised to 1.86.

The Yen (Usd/Yen) gained 40 pips during the overnight session, despite Asian equities closing in negative territory. The Yen moved in-line with the U.S. futures numbers, which are currently pointing to a strong open on Wall Street. The pair traded in a range of approximately 170 pips overnight reaching the lowest level in the last 4 months, before rebounding. Japans unemployment came in at 4.2 percent, which was higher than analysts’ expectations of 4.1 percent. The job to applicant ratio was 0.86 which is below the previous months 0.89. This has caused households to tighten up on spending and consumption as the Japanese economy remains sluggish. The average amount of monthly Japanese household spending for households of two or more fell 1.6 percent in nominal terms and is down 4.0 percent in real terms from one year ago.

Preparing for Another Round of Bailout Negotiations

Current Futures: Dow +213.00, S&P +32.80, NASDAQ +31.25

European Trade: Markets around the globe continue to trade lower, after the government’s plan to shore up the financial markets was voted down yesterday. Global Markets had the biggest decline in the last 21 years, tumbling 6.9% yesterday. The MSCI Asia Pacific Index fell 32% this year alone, shedding every gain made in the last few years. The Nikkei fell 483.75 points (4.12%) to 11,259.86. The Australian S&P/Asx dropped 206.90 points (4.30%) to 4,600.50. The German Dax fell 65.31 points (1.12%) to 5,741.77. The U.K. FTSE decline 3.92 points (0.08%) to 4,814.85

However, the strong declines seen during the last 24 hours should renew the Treasury’s aim, to bailout Wall Street. Not only did equity markets fall, but money and credit markets plunged as well. Legislators should look at the long-term consequences, that without an available credit line, business cannot operate, while at the same time it will affect the consumer’s buying capacity. Sources say that some small companies are already feeling the Wall Street woes, and this is not a big surprise. In a recent survey, U.S. citizens said Wall Street should be left alone and punished for its deeds, although, this means punishing the entire economy and as a result the entire world

While Congress dumped the bailout plan, another wave of banks came very close to bankruptcy. In the U.S. Wachovia was sold to Citigroup, while in Europe, Dexia required a 6.4 billion-euro ($9.2 billion) state-backed rescue.

Crude oil extended its decline in New York after falling the most in almost seven years yesterday as U.S. lawmakers rejected a $700 billion financial rescue plan. Crude oil for November delivery fell $2.16 (2.24%) to $94.12

Gold retraced some of the gains made earlier, after it was bought as an alternative investment. Bullion for immediate delivery gained $9.50 (1.06%) to $903.90.

Previous Asian trade: Global equity markets are crippled after the U.S. House of House of Representatives rejected the bill aimed to rescue the financials.

Even before the vote was made public, global equities were trading in the red as the market was questioning how the Government plan would save the real economy. When the news hit the wires, things only got worse. The S&P 500 fell the most since 1987, and the Dow Jones fell 778 points erasing an amazing $1.2 trillion in market cap. The major indexes are heading toward multi-year lows, yesterday the S&P 500 fell 106.8 points, or 8.81%. The NASDAQ fell a whopping 199.61 points, or 9.14%, and the Dow Jones closed 777.68 points lower, or 6.98%. The VIX index (also known as the fear-index) which measures the market’s volatility, rose 35% in one trading session, reaching a record 45 points.

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

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