Overall: The major currency pairs moved into risk aversion mode after Moody’s Investors Service said it may cut the ratings of several banks with units in Eastern Europe, adding to concern financial turmoil will deepen. Eastern European banks, which are mainly subsidiaries of financial institutions such as Vienna-based Raiffeisen Zentralbank Oesterreich and Stockholm-based Swedbank, are likely to come under “downward pressure” that may weaken their parent companies, Moody’s said in a report released today.
In U.S. economic news, manufacturing in the N.Y. region fell to the lowest level on record, according to a report today from the Federal Reserve Bank of New York. The report went on to say that manufacturers expected to pay and receive lower prices over the next six months and that employers continued to cut back on the number jobs and hours worked.
The Euro (Eur/Usd) fell nearly 200 pips in the Asian session and in the early part of the European session, but could not break below the 1.2600 area until later when it declined to the lows from Dec. 02 and Dec. 04, where support was found at least temporarily. A daily support tend line, established between the lows of Oct. 28 and Nov. 13, failed to hold as it had on Feb. 12 and yesterday.
The Euro-area adjusted trade balance was released at -0.3B in December, much better than expected. In December 2008 compared with November 2008, seasonally adjusted exports fell by 0.9% and imports by 3.9%. The Zew Economic Sentiment indicator for Germany improved again in February, for the fourth consecutive month, reaching -5.8 points. The index gained 19.40 points in February, from one month earlier. Economic expectations for the euro zone increased in February by 22.1 points. The respective indicator now stands at -8.7 points
The Pound (Gbp/Usd) trading near the 1.4050 area in Europe, where it had bottomed in the last few days, falling 60 pips shortly after the London open. The pair made a low of the day at the 61.8% retracement level of the last upswing, which coincided with the trend line support established on Sep. 25.
The U.K. Consumer Price Index moved slightly lower in January, to 3.0%, from 3.1% one month earlier. Even though the CPI declined at a record pace last month, this month the inflation gauge barely moved. In addition, the Core CPI, which excludes volatile items, actually rose to 1.3% from 1.1% last month.
The Aussie (Aud/Usd) initially rose 30 pips in the first minutes after the Asian session opened, but bounced off the 20-day simple moving average and started to move lower, breaking below all the pivot points. The next important support area for the aussie will be in the 0.6350 area, and support on that level was found in N.Y.
The following reasons were given for the RBA’s decision to lower interest rates by 100 basis points: the recent stimulus package is expected to encourage stronger demand in late 2009; interest rate reductions amount to very significant policy easing; the fiscal and monetary stimuli will take time in order to be effective.
The Cad (Usd/Cad) gained more than 150 pips in the overnight market after managing to break and hold above the 1.2500 area for the first time in the last month. The pair was actually little-changed in N.Y. even as crude declined sharply on the day.
The Swissy (Usd/Chf) rose nearly 180 pips from the low to the high of the Asian session, the biggest range of trade during that time period in recent history. However, shortly after the London open, the pair started to head lower, and shed some of the gains made earlier. The pair was mostly lower in N.Y on the back of renewed enthusiasm for the dollar as it looked for support at 1.1720.
Swiss retail rose more than expected in December, compared with one year ago. Over the last few months, retail sales had risen strongly, but it seems this trend will reverse, in-line with the fatigue seen in the economy. Nominal retail sales rose 4.5% from one year earlier in December.
The Yen (Usd/Yen) rose 100 pips in the Asian session, trading near TheLFB R3 (92.6%), where it topped. In the European session, the yen started to move lower, shedding most of the gains made earlier. The yen’s moves during the European trading hours were in line with the S&P futures, but it rose in N.Y. trading even as stocks declined strongly on the day.
Japan’s tertiary industry activity index decreased 1.6 percent for December. This report comes in as expected by economists and is the second month in a row to have such a fall. This decrease is in large part due to the growing threat of a recession in Japan that has seen a lack. Japan, which is the world’s second largest economy, has shrunk at the fastest pace since 1974.