Overall: The currency market gapped lower on Sunday's open but moved sideways early in the European session despite strong selling seen in the equity market, which denotes investors’ aversion to risk. But the momentum picked up and the dollar moved higher against the better-yielding euro, pound and Australian dollar as S&P futures declined and stocks continued the trend, sending the DOW below 7000.
In U.S. economic news, personal consumption rose 0.6% in January while personal income increased 0.4%, the Commerce Department said today. It was the first increase in spending for seven months. Consumers saved more also as the values of homes declined and the job market weakened; personal savings as a percentage of disposable personal income was 5.0% in January, the highest level since a 5.5% rate in March 1995. However, the increase in income was due mostly to increased transfer payments by the government to social security recipients; wages actually declined during the month. The price index for personal consumption expenditures rose 0.2%, after a 0.5% drop in December. The PCE price index excluding food and energy, the so-called core PCE, was up 0.1% in January, following a 0.1% decline the month before. Compared with a year earlier, the PCE price index rose 0.7%, after a 0.8% advance in December. The PCE price index excluding food and energy rose 1.6% year over year, after a 1.7% gain in December.
Manufacturing in the U.S. contracted for a thirteenth straight month in February, the Institute for Supply Management said today, but the rates of contraction in manufacturing and for the overall economy slowed. As a plus to consumers, the price index decreased for a fifth month in February but employment, which has now contracted for seven straight months, contracted at a faster pace. New orders contracted at a faster pace but production contracted slower. Exports contracted at the same rate in February as the previous month while imports contracted more quickly. Inventories, which have now declined for 34 straight months, contracted at a faster pace.
The Euro (Eur/Usd) fell sharply in the first minutes of the Asian session, but traded in a close range, below TheLFB S1 (1.2595), after things settled. The pair hit a high on 1.2631 at around 08:30 EST and spent most of the day in decline as stocks sold off strongly.
The Euro-area Flash CPI rose in February for the first time since June 2008. Until now, the declines in the CPI read were led by the crude oil sub-index, but the Flash estimate does not provide a detailed breakdown of the CPI’s components. The PMI release shows the euro-area manufacturing side of the economy has contracted for nine consecutive months. The Euro-zone PMI survey continues to establish record lows, pointing out that the economic contraction may be stronger and even more prolonged than previously thought.
The Pound (Gbp/Usd) struggled to break and hold below the 1.4200 support area in the overnight session. After reaching a high on 1.4141 around 08:30 EST, it fell thereafter as the S&P declined on the day.
Net lending to individuals fell again in January. The number came in at only £1.1B, much lower than analysts’ expectations. At the same time, the report showed that the number of loans approved for home purchase remain steady in January, at 31K. The U.K. Manufacturing PMI continued to disappoint investors in February, posting the second weakest read in its recent history.
The Aussie (Aud/Usd) gapped lower at the open and filled it about 90 minutes later. From there, the pair declined in a pattern of lower highs and lower lows, giving plenty of indication on the 30 minute chart that it would continue to decline. It broke below the daily support trend line during the U.S. session and a close below there will likely send the pair lower still.
The manufacturing sector in Australia has fallen to 31.7 in February from the previous reading of 36.6 in January. This is the ninth consecutive monthly decline for manufacturing activity in Australia, although the rate of decline has eased slightly from the low seen in November of 2008.
The inflation estimate for Australia, released this evening by TD Securities, increased by 0.7 percent month over month for February. This report shows that inflation pressures have somewhat stabilized as the economy attempts to buffer itself from the global recession which has diminished exports and consumer confidence wanes.
The Cad (Usd/Cad) rose 50 pips tonight, following the strong gains seen on Friday. The pair touched the highest value since December overnight, as the Canadian dollar continues to lose ground. The pair traded higher in N.Y. as the market grew risk-averse and crude fell over 10% on the day.
The Swissy (Usd/Chf) traded in a 40-pip range in the Asian session, between the opening price and the Friday’s high. In the European session, the swissy managed to break higher, but soon hit TheLFB R1 (1.1770), where it topped. The pair traded mostly higher in N.Y., although it did decline after 15:00 EST.
The Purchasing Managers Index shows the industrial sector contracted in Switzerland for the sixth consecutive month. The PMI number was released at 32.6, versus analyst’s estimates of 34.8. The Swiss PMI confirms that the economy is taking a similar path as the Euro-area and the U.S. economies, which are in recession. The index sits at multi-year lows, showing that inflationary pressures are almost zero.
The Yen (Usd/Yen) started the Asian session very strong, and continued into the European trading hours. However, the yen lacked any direction after the London open and traded side-ways to the neutral pivot point. Today was the second consecutive day in which the pair has declined, after it posting strong gains through most of last week as it seems that it's moving in-line with global stock markets.
The Japanese cash earnings decreased in January by 1.3 percent, this was after a 1.2 percent drop seen during December. Overtime hours fell by 40 percent while overtime pay dropped 14.8 percent. Overtime pay fell at its fastest pace ever as exports declined which prompted employers such as Toyota and Sony to cut hours and halt factory production lines.