Overall, the currency market sold the dollar in the European session. The star of the session was the pound, which rallied 300 pips tonight. In addition, the aussie and the yen posted some decent gains, even though the commodities that back their valuation, gold and the S&P futures, did not have such a strong session. Ahead, the market will probably stay connected to any news related to the stimulus plan, and react accordingly.
The Euro (Eur/Usd) gained 60 pips in the Asian session, but all the enthusiasm around this pair diminished after the German GDP report posted a very poor read. Currently, the euro is trading just below the 20-day simple moving average, and under a trend line that has held the pair for three weeks now.
The German economy contracted in the fourth quarter by 2.1%, much more than the market expected. The released number also represents the biggest quarterly drop since the German unification. Compared with Q4 2007 the German economy contracted by 1.7%. The flash estimate showed that fourth quarter Euro-area GDP contracted 1.5%, the third consecutive quarter in which the economy contracted.
The Pound (Gbp/Usd) had a strong rally in the overnight session, breaking above all the important resistance areas it encountered in its path. The pound gained almost 300 pips, paring the declines from the last two days of trading. Up to now, the pound had the biggest gains in the overnight session among the majors.
The Aussie (Aud/Usd) advanced in the Asian and in the European trading hours, gaining around 100 pips. The pair also managed to break above the 0.6600 level, where it had topped in the previous two days of trading. Tonight, the Australian government approved the stimulus plan, something that might turn out good for the Australian dollar.
The Cad (Usd/Cad) managed to break below the 1.2400 support area for the first time in the last two days, even though, the pair continues to trade very volatile in the overnight session. During the London open, the cad plunged 50 pips in less than 5 minutes, in a period when most of the majors barely moved. For now, the cad is testing the 50-day moving average.
The Swissy (Usd/Chf) struggled in the late Asian session and in the early European market to break under the 1.1560 level, where it had bottomed the previous day. However, the swissy lacked the momentum to break lower. The swissy is currently trading above all the important moving averages, but the 20-day SMA is getting very close to the price point.
The Producer Price Index in Switzerland decreased in January from one month earlier by a 0.8%, much more than expected. The Swiss PPI shows deflation, for the time being, after producer inflation reached a new record in previous months.
The Yen (Usd/Yen) rose 100 pips in the overnight market, breaking above TheLFB R1 (91.35). In the last few sessions, the yen advanced without any help from the U.S. futures. This happens very rarely, as the correlation between the two is usually high.