Overall: The currency market saw the dollar's strength in the overnight session. Except for the yen, every major currency lost ground against the greenback as a renewal of the banking crisis on both sides of the Atlantic caused traders to become risk-averse. There was no economic news from the U.S. on Tuesday.
The Euro (Eur/Usd) widened the declines seen one day earlier and fell another 120 pips overnight near TheLFB S1 (1.2950). The pair is trading near a one-month low and below all the important moving averages, as the market continues to be driven by risk-aversion. The pair broke below $1.30 around 01:00 EST and basically hasn't looked back since.
The Zew Economic Sentiment indicator for Germany improved again in January, reaching -31.0 points. The index gained 14.20 points, more than market expectations. At the same time, the release showed the economic expectations for the euro zone also improved in January. The Euro-area Zew index gained 15.3 points to -30.8 points. However, the indicator for the economic situation decreased both in the Euro-area and in Germany in January.
The Pound (Gbp/Usd) continued to tumble overnight. The pair dropped an additional 350 pips since the new trading day started and in the last two days of trading, the pair has tumbled nearly 850 pips to reach the lowest value since July 2001. As with the euro, the pair has continued to decline unabated.
The U.K. Consumer Prices Index fell in December to 3.1%, from 4.1% one month earlier. The CPI's decline of 1% is a record, even though it is below the market's expectations. The Core CPI read, which excludes volatile items, fell to 1.1%, more than market expectations.
The Aussie (Aud/Usd) fell in the Asian session near TheLFB R1 (0.6595). Yesterday, the aussie broke below the 50-day moving average, and is now trading under all the important moving averages. The decline continued as the market grew risk-averse, sending the pair below the .6500 handle for the first time since Dec. 07.
The Cad (Usd/Cad) rose nearly 90 pips to TheLFB R1 (1.2615) and continued mostly higher in N.Y. after the BoC lowered its main policy rate by 50 basis points, as expected. In the statement released afterwards policymakers left to door open to a further reduction in interest rates; repeating a phrase used to announce last month's reduction, the bank said it will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required.
The Swissy (Usd/Chf) rose another 100 pips during the overnight session, adding to the 200 pips gained one day earlier after it broke the 4 hour channel from last week. The pair broke above the 100-day moving average and is now preparing to test the 50-day. The pair was mixed in N.Y. but did look to finish near session highs.
The Yen (Usd/Yen) struggled to break below the 90.00 area in the overnight session but had no problem as stocks declined in N.Y. A close of the S&P below Dec. 01 and Jan. 15 closes probably signals the entire market is likely to head towards the November bottom.
Japans tertiary industry activity index decreased 0.9 percent for November. This was slightly worse than analysts' expectation of a 0.8 percent drop. The previous figure of 0.4 percent for October has been revised to 0.5 percent. The current environment in Japan is making it difficult for service consumption to follow an upward path .