Large Swings Overnight

By IBTimes Staff Reporter | January 21 2009 6:16 AM

Overall, the market saw strong swings overnight. In the Asian session, the market sold the greenback in frenzy, having some very strong moves for that time of the day. However, during the European session, the dollar regained every lost pip, testing the Asian opening price against every other major currency. Ahead, the U.S. calendar is very light, but judging from the overnight movement in the currency market, the U.S. session is likely to remain volatile.

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The Euro (Eur/Usd) traded between the 1.2850 area, the low of the last day of trading, and TheLFB R1 (1.3025), in the overnight market. The pair had some very strong swings, even though at the current time, the pair is barely moving. On the daily chart, the euro continues to trade below all the important moving averages.

In December, the German PPI was released at -1.1%, slightly lower than the market's expectations. However, the year-over-year read still stands at 4.3%. The largest upward pressure came from energy products in the prior months, but now this trend seems to be reversing, dragging the whole index lower.

The Pound (Gbp/Usd) had a very volatile overnight session. The pair advanced 150 pips during the Asian session, near the neutral pivot point (1.4040), but soon plunged 300 pips. The pound's trading session continued to be very volatile in the European session, as the U.K. economic calendar was very busy this morning.

In December, the U.K. M4 rose by £33.0 billion, or 1.7%, more than what analysts had predicted. Year over year, the M4 growth rate is standing at 16.6%. The number of people seeking unemployment benefitsin U.K. rose in December to the highest value in the last 9 years. The report shows there were 1.16 million persons on he claimant count in December, and up by 77,900 from one month earlier. The annual rate of growth in average earnings excluding bonuses was 3.6% in the three months to November 2008, unchanged from the three months to October. The unemployment rate increased again in the U.K. in the latest three months to November 2008, to the highest rate seen in the last decade.

The Aussie (Aud/Usd) advanced 110 pips in the Asian session. However, the London open dragged the pair lower, causing it test the low of the previous day of trading. For the moment, the aussie trades near the lowest value seen in the last month.

The consumer sentiment indicator for Australia fell to -2.2 percent from last month's 7.5 percent reading. For the full year to January, the index was -12.8 percent, seasonally adjusted. This decline has erased some of the 12.1 percent jump seen in the sentiment through the November and December period. It also suggests that initial gains due to the interest rate cuts and stimulus packages are beginning to wane.

The Cad (Usd/Cad) traded between two important areas in the overnight session. The pair managed to test the 1.27 area in the European session. In the Asian trading hours, the pair tested the 1.26 level, breaking below the neutral pivot point (1.2625), 70 pips lower than the Asian opening price. Yesterday, the Bank of Canada reduced the monetary stance by 50-basis points, as expected.

The Swissy (Usd/Chf) had large swings overnight. In the European session, the pair tested the high of the last day of trading, even though earlier, the swissy fell almost 100 pips. In the last few days, the swissy advanced a strong number of pips, dragged higher by the euro link.

The Yen (Usd/Yen) advanced 40 pips during the Asian session, but gave all back in the European trading hours. Currently, the yen trades near the Asian open, below all the important moving averages. The S&P futures are pointing to a positive start on Wall Street, which may drag the yen higher.

U.S. Futures Advanced On $825 Billion Stimulus Plan

Current Futures: Dow +19.00, S&P +3.10, NASDAQ +1.50

European Trade: Asian markets closed lower for a second consecutive day, and the European markets opened below the breakeven line. Despite this, U.S. future managed to gain some ground overnight. This is the first time in the last few days that the U.S. futures and the European markets have shown such a strong divergence.

Mr. Obama's economic team has already started working on the $825 stimulus package. It is not clear enough how the money will be used, but it is speculated that approximately $50 billion will be used to help homeowners avoid foreclosure. The rest of the funds would be used as a mixed of policies, including cash injection into the balance sheets of various banks, public spending and as a safety net for some of the bad assets that banks hold. It looks like this news has helped the U.S. futures advance overnight.

Some investors fear that a number of banks will need to be nationalized, as bankruptcy would only increase the damage that has already been done to the financial markets. However, nationalization practically means wiping out shareholders, and this triggered a strong wave of selling yesterday.

In Europe, markets are currently heading lower. The U.K. Ftse fell 32.74 points (0.80%) to 4,058.66, while the German Dax slipped 41.14 points (0.97%) to 4,198.72

Crude oil posted strong gains yesterday, after making a new low. Crude oil for February delivery gained $0.10 to $40.90.

Gold declined a little in the Asian session. Bullion for immediate delivery lost $4.30 to $850.90.

Previous Asian trade: Tonight, the Nikkei fell 155.15 points (2.04%) to 7,901.64. The Australian S&P/Asx lost 33.80 points (0.97%) to 3,442.80.