Overall, the market moved very little in the overnight session, trading in a close range. The majors made some feeble attempts to break the support or resistance areas in the Asian session, but failed to pull off the moves due to the lack of momentum. The only positive thing that happened tonight was that the main pairs started to regain correlation, something that has been missing in the last few days.
The Euro (Eur/Usd) tested TheLFB R1 (1.2900) during the Asian session and at the same time the high reached in the last day of trading. However, the pair started to move lower soon after, shedding almost every gain made in the Asian session. After the London open, the euro started again to move higher, but the moves were relatively strained.
German retail sales continued to tumble in December, as the economy slows. Retail sales have fallen by 0.2% compared to the expected 0.5%. From one year earlier, retail sales are down in Germany by 0.3%. The Euro-area PPI shows that the pace of inflation is starting to slow at a strong pace. Producer prices dropped a 1.3% in December, following a record drop just one month before, of 2.0% (revised)
The Pound (Gbp/Usd) wasted the Asian session and the early European trading hours struggling to break above the neutral pivot point (1.4250). The pair fell yesterday nearly 400 pips, but recovered half of the ground lost, during the U.S. session. On the upside, the main resistance area remains the 20-day moving average.
The construction PMI rose sharply in January, up to 34.5, despite analyst expectations for a very poor read. Just one month ago, in December, the index hit a record low. The sharp rise may have been influenced by the BoE's huge rate cuts, and the U.K. government's decision to support the mortgage market throughout its newly nationalized banks
The Aussie (Aud/Usd) rose tonight for the first time in the last four days, even though the RBA cut the overnight lending rate by one full percentage point. During the Asian session, the pair advanced 120 pips, from which 60 pips came during the interest rate announcement.
The Reserve Bank of Australia has lowered its interest rate a full 100 basis points to 3.25 percent. Governor Glenn Stevens has lowered the rate to a low not seen during the last two decades. By doing this, Governor Stevens and the RBA aim to restore consumer and business confidence which has been battered by the global financial crisis and hopes that this cut well help spur demand and keep the country from slipping into a period of negative growth.
The Cad (Usd/Cad) tested the high of the previous day of trading, during the Asian session, but lacked the momentum to break higher. Lately, the cad has been affected by the declines seen in the crude oil market, pulling the Canadian dollar lower.
The Swissy (Usd/Chf) struggled to take out the neutral pivot point (1.1630) in the overnight session, but failed to pull the move. In addition, the pair trades above all the important moving averages and is near an important resistance area, which has held the pair in the last few weeks.
The Swiss trade balance surplus tumbled in December, as the foreign demand slowed. Compared with the estimated number, the trade balance was released much lower, 0.22B versus 1.74B. For November, the report was revised slightly higher, to 2.25B
The Yen (Usd/Yen) traded in a 60-pip range overnight, between the neutral pivot point (89.35) and TheLFB R1 (89.95). The pair has struggled to break above the 90.00 area, and in the same area above the 20-day moving average, for a few days. If the equity markets are able to trade in positive territory, the yen might test that resistance area again.
The Japanese monetary base came in with a reading of 3.9 percent year over year in January. This is sharply higher than December's reading of 1.8 percent, as well as being above analysts' expectations. Banknote circulation in January was up 0.4 percent
Positive News Overnight Fails To Spark Equity Markets
Current Futures: Dow +29.00, S&P +3.60, NASDAQ +7.25
European Trade: Even though we had some very optimistic news releases during the Asian trading hours, the major indexes from the region closed barely above the break-even line, shedding most of the gains made earlier. European markets opened higher, in-line with the U.S. futures, but are currently trading under the breakeven line.
The Australian and the Japanese governments intensified their actions tonight to help the economy weather the credit crisis. The Australian authorities announced a new stimulus plan, aiming both at public spending and at social security programs. The stimulus plan is set to cost $26 billion, money that will be used over the next three quarters. However, the stimulus plan is small compared with the size of the economy, around 3%. At the same time, the RBA reduced the overnight lending rate with one full percentage point tonight, making it easier for companies to access credit lines.
In Japan, the central bank pledged to buy stock shares held by banks, helping the financial institutions ahead of the end of the fiscal quarter. The BoJ also used this measure between 2002 and 2004, when the bank was implementing the quantitative easing strategy. The BoJ will buy the shares at the market price, but by this method, it will avoid sending the Nikkei spiraling lower.
In Europe, Vodafone announced better than expected results for the third quarter of 2008. The better than expected results were helped by a beneficial currency exchange rate. A few years back, the same company, Vodafone, posted the biggest corporate losses on record in the U.K. However, the record was broken this year by the Royal Bank of Scotland. Also in Europe, BP, one of the largest European oil companies, posted its first quarterly loss in the last 7 years, on weak oil prices
The U.K Ftse fell 26.50 points (0.65%) to 4,051.28, while the German Dax shed 34.09 points (0.80%) to 4,236.95
Crude oil is barely holding above the $40 area. Crude oil for March delivery fell $0.10 to $40.50.
Gold traded mixed tonight, after it plunged $25 the day before. Bullion for immediate delivery fell $1.60 to $900.80.
Previous Asian trade: Tonight, the Nikkei slumped 48.47 points (0.62%) to 7,825.50. The Australian S&P/Asx gained 11.30 points(0.32%) to 3,508.70