Overall, the dollar extended the gains seen in the last session, and strengthened into the European trading hours. The currency market was again driven by risk aversion, as investors bought the safety of the dollar. Ahead, some top-tier releases are scheduled, including the U.S. Q4 GDP, so traders may continue to buy the low-yielding currencies.
The Euro (Eur/Usd) fell 60 pips during the European session and broke below TheLFB S1 (1.2670), after trading virtually flat in the Asian session. In addition, the euro broke below the 1.2700 support area, which had held the pair for some time. Next week, the market expects the ECB to reduce the overnight rate by 50 basis points.
Inflation fell in the Euro-area in January to 1.1% from one-year earlier, in-line with the Flash CPI forecast. The strong declines in CPI sub-indexes helped the inflation gauge reach the 2% target much earlier than forecast. However, the core CPI fell more than expected, 1.6% vs 1.8%. The unemployment rate in the Euro-area continues to rise. The latest release, for the month of January, shows that the unemployment rate reached 8.2%, more than was expected.
The Pound (Gbp/Usd) is trading now just above the 1.4150 support area, which has held the pair since the beginning of February. In the last period, the pound had a very negative reaction to bad news coming out of the U.K. financial sector, so some more selling may not be out of the question.
The GfK consumer confidence for the month of February fell to -35 from a -37 reading in January. Confidence in the U.K. that this current economic situation will be over in the next 12 months has risen 8 points, while confidence in the personal household finances has increased by 6 points.
The Aussie (Aud/Usd) fell to TheLFB S2 (0.6400) during the European trading hours, extending the declines first seen in last U.S. session. This level, 0.6400, corresponds to a 4h support trend-line that has held the pair since the beginning of February. Breaking below this level, the aussie may see some strong selling orders.
The Cad (Usd/Cad) traded on light volume in the overnight market. The pair rose 50 pips, testing the 1.2580 area, the high of the last two days of trading. The cad continues to trade above all the important daily simple moving averages.
The Swissy (Usd/Chf) traded flat in the Asian session, but surged 100 pips in the early European session, breaking above TheLFB R1 (1.1715) and the highs of the last days of trading. Also, in the early Asian session, the swissy bounced off the 20-day simple moving average.
The Yen (Usd/Yen) dropped 130 pips in the overnight market, declining for the first time in the last few days. The yen selling came on the heels of very poor data from Japan tonight. Previously, the yen was trading at 3 month high.
Japan’s consumer prices have fallen to a flat 0.0 percent reading in January for the first time in over a year as a deepening recession has forced many households to curb spending. Record declines seen in the export market have prompted companies to lay off workers and cut wages, while slowing spending.
Industrial production for January plummeted to a new low for a third consecutive month. The report indicates that production has fallen by 10.0 percent from one month earlier. This indicates that more layoffs are on the way as companies struggle to decrease costs.