Overall, the dollar continues to strengthen overnight. The only exception among the majors is the pound, which rose after some very good economic reports coming from the U.K. Ahead, the market is likely to become very volatile, especially during the U.S. open, when some important releases are scheduled.
The Euro (Eur/Usd) lost 70 pips overnight, extending the declines seen one day earlier, when the pair plunged more than 220 pips. Currently, the euro is trading just above the 1.28 support area, which held the pair in the last period. If the Euro breaks lower, we might see the downtrend continue, as another wave of short orders will hit the market.
The unemployment rate in the Euro-area continues to rise. The latest release, for the month of December, points out that the unemployment rate reached 8.0%, more than expected. The unemployment rate for the month of November was revised higher, to 7.9%. About 12.472 million persons were unemployed in the Euro-area, up by 230K from one month earlier. The CPI release for the month of January shows the read is standing at 1.1%, despite earlier this year the CPI hit a record rate of 4.0%. The outlook for inflation clearly lies to the downside now, but ECB officials have said they do not expect the inflation gauge to fall below the 0% benchmark, at least for a longer period
The Pound (Gbp/Usd) tested the 1.42 area in the Asian session. However, shortly after the London open, the pair surged higher. In the last three days, the pound traded within the same range, despite the dollar strengthening across the board.
U.K. Net lending to individuals rose in December unexpectedly. The number came in at £2.2B, above analysts' expectations of £1.3B. The number released for the month of September was revised higher, to £1.6B. At the same time, the same report showed that the number of loans approved for home purchase also rose in December, by 31K.
The Aussie (Aud/Usd) fell to TheLFB S1 (0.6450), in the Asian session. However, the pair struggled to move any lower than this level in the European session. In the last few days, the aussie lost its link with gold, as the precious metal became a safe heaven and aussie was sold lower in risk-aversion.
The leading index for Australia has decreased 1.0 percent for the month of November, falling to a reading of 114.1. This is the third consecutive decrease for the index. Contributing to the declines seen were building approvals, share prices, yield spreads, and rural goods exports
The Cad (Usd/Cad) traded very volatile overnight, with moves seemingly coming out of nowhere. The pair fell initially 50 pips in a few minutes during the London open and then rose 70 pips in the next few minutes, while the rest of the market barely moved. Since the Asian session started, the pair traded between the neutral pivot point (1.2210) and TheLFB R1 (1.2315).
The Swissy (Usd/Chf) traded range bound overnight. On the downside, the pair could not break any lower than the neutral pivot point (1.5010), while on the upside it hit a resistance near the 1.5800 area, where the high of the previous day of trading was.
The Yen (Usd/Yen) fell to TheLFB S1 (89.45) in the Asian session, but struggled to break any lower. Eventually, the pair broke the support area, but only after the London Open. In the last two days, the pair was sold as the market is again driven by risk-aversion.
Japans unemployment rate, seasonally adjusted, increased to 4.4 percent in December. This is despite expectations for it to hold rise to only 4.1 percent. The GfK consumer confidence for the month of January fell to -37 from a -33 reading in December. Confidence in the U.K. that this current economic situation will be over in the next 12 months also dropped seven points, while confidence in saving now for the future fell ten points to -18.. Japanese industrial production for December plummeted to a new low for a second consecutive month. The report indicates that production has fallen to 9.6 percent from one month earlier.
Equity Markets Ahead Of The U.S. GDP
Current Futures: Dow +15.00, S&P +2.50, NASDAQ -4.00
European Trade: European markets opened mixed for the final trading session of the week, following on from the decline seen in Japan. The U.S. futures have also traded mixed in the overnight session, ahead of the Q4 advance GDP release.
The U.S. GDP will be released during the U.S. open, at 8:30 am EST. The Q4 GDP was forecasted at -5.4% in annualized term, which would be translated in a 1.35% contraction from Q3 to Q4. However, estimates run very wild around this number, from -3% to -7% in annualized terms. If the analysts' estimates hold true, the economy contracted the most since 1982, when the economy shrank by -6.2%.
However, back then the economy grew at a very fast rate in the preceding and in the following years. Particularly, in Q2 1978 the economy expanded a massive 16.7%, while from 1983 Q1 to Q4 1984, the economy averaged a 5.6% expansion each quarter, also in annualized terms. Consumer spending, which accounts for roughly 70% of the economy, is expected to contract 3.5%, dropping for the first time two consecutives quarters.
Initially, the economy was seen resuming its growth path at the beginning of 2009. Shortly after Lehman's bankruptcy, estimates were adjusted in the second half of 2009. Nowadays, forecasts are that the economy will start to recover in 2010. The U.S. economy is expected to contract 2% in 2009, similar to the Euro-area or the U.K. economies. Among the industrialized countries, the most affected seems to be Japan, which is expected to contract more than 3% in 2009.
In Europe, the U.K. Ftse rose 10.14 points (0.24%) to 4,200.25, while the German Dax slipped 9.75 points (0.22%) to 4,418.37.
Crude oil is struggling to hold above the $40 benchmark. Crude oil for February delivery rose $0.30 to $41.70.
Gold rose in the last session, as investors were looking for safety. Bullion for immediate delivery rose $15.50 to $921.60.
Previous Asian trade: Tonight, the Nikkei slumped 257.19 points (3.12%) to 7,994.05. The Australian S&P/Asx gained 14.50 points (0.41%) to 3,540.70.
Written by TheLFB Trade Team, © 2007-2008 LFB Services, LLC. All rights reserved. http://www.TheLFB-Forex.com