Overall, the dollar strengthened again, in the European session, against most of the other major currencies, with the Japanese yen being the exception. The cable is the weakest pair since the new trading day started, falling nearly 200 pips and breaking below an important support level. Ahead, the U.S. equity markets will be closed today, in observance of the Martin Luther King Jr. holiday and this may reduce the liquidity in the currency market. However, it should be noted that in the recent past, the currency market has had some very strong swings while one session was closed for trading.
The Euro (Eur/Usd) fell 70 pips overnight, as the dollar strengthens across the board. At the Sunday open, the pair had a 75-pip gap, which helped the pair break above the 1.33 resistance level. Most of the selling came in the European session, as liquidity increased.
The Pound (Gbp/Usd) tumbled more than 200 pips in the overnight session, breaking below the 20-day simple moving average and at the same time, falling below the low reached on Friday. Most of the selling came in the European session, shortly after the London open. Tonight, at the Sunday open, the cable had the biggest gap from the majors.
The Rightmove house price index for the month decreased to negative 1.9 percent, month over month. There is also a very low level of new listing coming to the market with only 43,000 this month when compared with 89,000 in January of 2008. This has limited homebuyers' choices. Only one area in the U.K. had an increase from the previous month, East Midlands.
The Aussie (Aud/Usd) has been caught trading between the 20 and the 50-day simple moving averages in the overnight session. Both are important swing areas, requiring strong momentum if the pair is going to break above or below. The aussie has a very light economic calendar this week.
The inflation estimate for Australia, released this evening by TD Securities, decreased by 0.2 percent month over month for December. This is the first time that the TD-MI inflation gauge has fallen for three consecutive months. In the past 12 months the gauge rose by 2.2 percent which was the lowest rate seen since May or 2005
The Cad (Usd/Cad) tried to take out the neutral pivot point (1.2440) during the Asian and European sessions. Up to now, the pair has failed to pull the move, but the cad might be pulled higher by the oil link. Subsequent to the strong buying from the last period, the cad trades above all the important moving averages.
The Swissy (Usd/Chf) continues to trade within the same range as it did during the past week. The resistance area is formed by the 1.1250 area, while support is found near the 1.1120 area. The swissy will need very strong momentum in order to break from here.
Swiss retail fell in November from one year earlier. The release number of -1.4% is lower than market expectations of 1.5%. 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 are down 0.5% from one year earlier in November.
The Yen (Usd/Yen) moved lower during the overnight session, breaking below the 20-day moving average. The pair fell 50 pips, after opening with a 25-pip gap from the weekend trading. Later this week, the Bank of Japan is expected to announce its monetary policy.
European Markets Surge As U.K. Government Takes Action
Current Futures: Dow +54.00, S&P +7.60, NASDAQ +11.75
European Trade: Asian markets closed the trading session with small gains, erasing most of the gains seen earlier. However, the European equity markets surged today, helped by the U.K. governments plan to secure the financial system. The U.S. futures market is also trading higher, even though U.S. equity markets will not open today.
The nationalized U.K. bank, Royal Bank of Scotland (RBS), said in a statement today that it might lose as much as $40 billion, because of the credit crunch. The reported sum is the biggest ever recorded as a loss by a U.K. company. Planning to increase the lending process, by all means necessary, sources have said that the U.K. Treasury may raise its stake in the bank to 70%, practically wiping out shareholders.
Also in the United Kingdom, the Chancellor of the Exchequer, Alistair Darling, announced a new plan to help the financial system. The authorities plan to underwrite most of the toxic debt currently held by local banks, in order to spur lending. Moreover, the Government announced a plan to allow the central bank to buy 50 billion pounds worth of assets. This decision is designed to bring yields down on corporate debt and kick-start a lifeless market.
Tonight, the Nikkei gained 26.70 points (0.32%) to 8,256.85. The Australian S&P/Asx rose 38.40 points (1.08%) to 3,589.30. Because of the decisive plans in the U.K., European and especially U.K. shares surged higher. The U.K. Ftse rose 90.97 points (2.19%) to 4,238.03, while the German Dax gained 76.27 points (1.75%) to 4,442.55
Crude oil moved lower as a peace treaty was signed in the Gaza conflict. Crude oil for February delivery fell $0.30 to $36.20.
Gold moved slightly lower, in-line with crude oil. Bullion for immediate delivery lost $2.50 to $837.40.
Previous Asian trade: Asian markets opened higher for the first trading session of this week, as the major governments appear again ready to step into the financial markets.
In the U.S., talks are focusing on a bad debt bank. Authorities are planning to create a bank that would buy all the toxic loans from banks, taking a burden off their balance sheets, a solution that was previously implemented with success in the U.S., during the insolvency of the savings and loans associations.
In the U.K., the government plans to underwrite most of the bad debt on the bank's balance sheets. It is expected that banks would have to pay a fee and support the first part of the losses. In addition, it is said, that government would also guarantee mortgages and corporate loans worth of 100 billion pounds, taking value of the bank rescue plan to at least 350 billion pounds.