Overall, the currency market traded mixed in the overnight sessions. The euro, swissy and the yen advanced against the dollar, while the rest of the major currencies declined for a second consecutive day. The market again lacked momentum and volume in the Asian session, but regained some during the European trading hours.
The Euro (Eur/Usd) rose again in the overnight session, gaining 70 pips. For the moment, it seems that the euro is following the same pattern of trading as yesterday, when the euro, together with the swissy, were the only major pairs that advanced against the dollar. However, the euro now approaches the 20-day simple moving average, where some traders might use it as an exit point.
The German CPI fell by 0.5% in January, in-line with the market's expectations. Last month, in December, the German CPI rose for the first time in the last 5 month. Year-over-year inflation in Germany reached 0.9%, dragged lower by the huge declines seen in the energy market.
The Pound (Gbp/Usd) dropped another 140 pips in the overnight sessions, as the market prepared itself for the BoE Inflation Report. The pound tumbled in the last two days of trading nearly 500 pips, breaking below the 50-day simple moving average and under a very important trend-line that connected the peaks from November to January.
The unemployment rate increased again in the U.K. in the latest three months to December 2008, to the highest rate seen in the last decade. The released rate of 6.3% is in-line with market expectations. The annual rate of growth in average earnings excluding bonuses was 3.6% in the three months to December 2008, unchanged from the three months to November. The number of people seeking unemployment increased again in January, to the highest value in the last 10 years. The report shows there were 1.23 million persons on he claimant count in January, and up by 73,800 from one month earlier
The Aussie (Aud/Usd) traded without a clear direction in the overnight session. The pair had some small swings around the Asian open price, but never succeeded to break anywhere. For the moment, the aussie is trading near a very important swing area, near the 20-day simple moving average and near the 0.6500 support level.
Home loans in Australia grew twice as much as analysts' estimates of 3.6 percent to an astounding 6.4 percent in December. In trend terms, the total value of dwelling finance commitments increased 0.8%. Owner occupied housing commitments increased 1.7%, while investment housing commitments decreased 1.3%. The consumer sentiment indicator for Australia fell to -4.6 percent from last month's -2.2 percent reading. The sentiment index came in at 85.8 points in February and this is the twelfth month that the index has held below 100.
The Cad (Usd/Cad) extended the gains seen one day earlier, and added another 50 pips. Most of the gains came shortly after the London Open, while earlier, during the Asian trading hours, the cad traded mostly flat. The cad is getting close to the 1.2500 resistance level, which has held the pair for about three weeks.
The Swissy (Usd/Chf) advanced 60 pips in the early part of the Asian session, but shed every pip gained soon after. During the European session, the pair fell another 50 pips, and tested the low of the previous day of trading, very close to the area formed by the 20 and the 100-day moving averages.
The Yen (Usd/Yen) tested the 20-day simple moving average, after declining 45 pips overnight. The pair moved lower and broke below the previous day's low even though the S&P futures advanced a little overnight. In the last three days, the yen has lost 210 pips.
Equity Markets Continue To React Negative To U.S. Financial Plan
Current Futures: Dow +52.00, S&P +5.60, NASDAQ +3.75
European Trade: European shares opened below the breakeven line, once again, as equity traders remain skeptical about the efficiency of the new financial rescue plan. Asian shares also closed lower, while the U.S. futures turned positive overnight.
Bad news came out of China tonight. First, a former Chinese central bank member and current head of the Chinese Academy of Social Sciences, Mr. Yu, said the U.S. should guarantee the Chinese holdings of foreign debt. Currently, China is the biggest holder of U.S. debt, totaling $682 billion. Ironically, a large bulk of the U.S. deficit comes from Chinese based imports.
If the Chinese government changes its strategy, and eventually stops buying Treasuries, the Fed might have another headache in the following period. Certainly, the Treasury will have some hard times finding buyers for its debt, which means the Fed will have to ultimately act as one. As such, the Fed will have no other choice than to print more dollars, something that will devalue the greenback.
Continuing with news from China, exports declined by 17.5% in January, the biggest slump in the last 13 years. More than anything else, this shows that global trading is drying up, on very poor demand coming from the world's biggest economies. However, the Chinese economy is very likely to keep its huge trade surplus, since, at the same time, Chinese imports dropped by a whopping 43.1% from one year earlier. It should also be noted that a rising number of analysts question the Chinese reports, mostly referring to the methodology of calculating the numbers.
In Switzerland, 2008 was a rough year for the banking sector. The two biggest Swiss banks, UBS and Credit Suisse reported huge losses, on bad investments. In the fourth quarter alone, Credit Suisse lost 6 billion Swiss Francs, or about $5 billion. Its biggest rival, UBS, lost a whooping 19.7 billion Swiss Franc, or $17.1 billion in 2008. UBS has agreed with the Swiss Government for a credit line, while Credit Swiss denied any help
In Europe, the declines were lead by the financial stocks and car manufacturers. The U.K. Ftse fell down 5.49 points (0.13%) to 4,207.59, while the German Dax declined 11.40 points (0.25%) to 4,494.14
Crude oil dropped in the last sessions of trading on lower demand outlook. Crude oil for March delivery gained $0.50 to $38.20.
Gold acted as a safe heaven in the last period. Bullion for immediate delivery rose $0.30 to $916.80.
Previous Asian trade: Tonight, the Nikkei was closed for business. The Australian S&P lost 14.30 points (0.41%) to 3,474.40.