EUR Services and Manufacturing PMI's Contract at Record Pace

Europe's services and manufacturing sectors contracted at a record pace in February, preliminary data showed. The services PMI fell to 38.9 from 42.2 while the manufacturing PMI slid to 33.6 from 34.4. Both indexes were expected to increase slightly, as hopes were for stabilization in the downturn. Those hopes were dashed with this data and solidify expectations of a rate cut by the ECB in its next meeting.

UK Retail Sales Surprises on Upside

In the UK, retail sales rose 0.7% on the month in January, surprising forecasts on the upside. Expectations had been for a flat month. The gain was led by strong internet sales and aggressive discounting. On the year, sales rose 3.6%, following an upwardly revised 4.3% annual gain in December.

GBP/USD - Pound Rallies 300 Pips Following Retail Sales


The Pound-Dollar pair bounced off support near 1.4160, and rose near 300 pips to a new high for the week at 1.4480. The Pound gained following its retail sales data, and the Dollar was pressured in the late NY session, especially after European traders left for the day and liquidity got thinner at the end of the week.

USD/JPY - Yen Jumps on Dollar as Dow Jones Falls Below 7,300


US stocks were down sharply to start today's NY session and extended those losses in the afternoon. The Dow Jones index fell below 7,300 and set a new 11-year low, as shares of Bank of America hit a record low and Citigroup stocks slumped to an 18-year low on fears the two financial giants may be nationalized. The increase in risk aversion boosted the Yen, pushing the Dollar-Yen 170 pips lower to set an intra-day low near 92.50, after the greenback rally of the last 6 sessions came across resistance at 94.40.

GBP/CHF - Swiss Franc Gains 400 Pips on Pound as Global Equities Sell Off


In a look at another pair that moves in correlation with investor sentiment, the Pound-Swiss Franc plummeted 400 pips after it set an intra-day high near 1.7030. The decline wiped out the gains from this week and brought the pair back near its open on Monday around the 1.66 level. Its interesting to note that the Pound-Yen pair did not see a significant move in the Yen's favor. The main London index, the FTSE 100 was off 3.2%, though unlike shares trading elsewhere in Europe it managed to stay above 2008 lows.

EUR/USD - Euro Capitalizes on Weak Greenback to Reclaim 1.2880


In a change from recent trends, the Euro-Dollar rose during today's burst of risk aversion. From a low near 1.2560 that was reached around the NY open, the pair rose 300 pips to claim the level at which hit started the week. It put the pair back above the 1.2750 level which had switched from support to resistance earlier in the week.

US Consumer Prices Rise for the First Time in 6 Months

In a fundamental release from the US, consumer inflation rose 0.3% in January, slightly higher than forecasts of a 0.2% increase. The core rate was up 0.2%. On the year, prices were flat, which is the first time that annual inflation was zero in over half a century. Though the annual rate is down as a result of the recession and the sharp decline in energy prices since last summer, the monthly rate showed its first increase in six months.

CAN Consumer Prices Ease in January

Canadian consumer prices continued falling in January, declining 0.3% on the month. Core prices fell more than expected, which means that the disinflation that started in energy prices is filtering into other goods and services in the economy. When price declines are centered around energy and commodities, its generally a plus for an economy as it puts more disposable income in households which can then spend on other goods. Its when price declines filter into other products that businesses, already hurting form the recession, choose to limit their spending and hiring, which becomes a negative for the economy.

USD/CAD - Greenback Slides vs Loonie In Late NY Trading


The US Dollar-Canadian Dollar pair followed the pattern of greenback weakness in the second half of the NY trading session. The pair rose to an intra-day high of 1.2650 in the early NY session but then plunged about 200 pips, hitting its lows from Tuesday around 1.2420 and then recovering to the 1.25 level in the mid afternoon.

Next Week's Releases

Next week, we get a view of the most recent US data on housing sales, including existing and new home sales, along with durable goods orders for January. At the end of the week, the US will post its revised version of 4th quarter GDP.

Capital Market Services, L.L.C.

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