Overall, the currency market saw the dollar's strength in the overnight session. Except for the yen, every major currency lost ground against the greenback. Both the European and the U.S. economic calendars hold some mid to top tier releases, so liquidity its very likely to stay high. Also, U.S. markets open after an extended weekend, which may create some serious volatility.
The Euro (Eur/Usd) widened the declines seen one day earlier, and fell another 120 pips overnight, near TheLFB S1 (1.2950). The pair is trading near a one-month low and below all the important moving averages, as the market continues to be driven by risk-aversion. However, the pair is struggling to hold below the 1.30 support level, a very important swing area.
The Zew Economic Sentiment indicator for Germany improved again in January, reaching -31.0 points. The index gained 14.20 points, more than market expectations. At the same time, the release showed the economic expectations for the euro zone also improved in January. The Euro-area Zew index gained 15.3 points to -30.8 points. However, the indicator for the economic situation decreased both in the Euro-area and in Germany in January.
The Pound (Gbp/Usd) continued to tumble overnight. The pair dropped an additional 350 pips since the new trading day started. In the last two days of trading, the pair has tumbled nearly 850 pips, reaching the lowest value since July 2001. It should be noted that, the pair has bottomed around the 1.40 area, in the last two decades, even after moving lower in intra-day trading.
The U.K. Consumer Prices Index fell in December to 3.1%, from 4.1% one month earlier. The CPI's decline of 1% is a record, even though it is below the market's expectations. The Core CPI read, which excludes volatile items, fell to 1.1%, more than market expectations.
The Aussie (Aud/Usd) fell in the Asian session near TheLFB R1 (0.6595), but could not move below that point. The pair's outlook lies to the downside, reflecting the selling from the commodity market. Yesterday, the aussie broke below the 50-day moving average, and is now trading under all the important moving averages.
The Cad (Usd/Cad) rose nearly 90 pips, to TheLFB R1 (1.2615) but failed to move higher. The cad trades slightly under the resistance area that has held the pair lower for the last few trading days. Early in the U.S. session, the Bank of Canada is expected to cut interest rates 50 basis points, down to 1%.
The Swissy (Usd/Chf) rose another 100 pips during the overnight session, adding to the 200 pips gained one day earlier. The pair broke above the 100-day moving average, and is now preparing to test the 50-day moving average. Currently, the swissy trades at one month high.
The Yen (Usd/Yen) struggled to break below the 90.00 area in the overnight session but has so far been unable to complete the move. This is the same area that the pair bottomed on Monday. Later this week, the market expects the BoJ to announce its new monetary policy stance.
Japans tertiary industry activity index decreased 0.9 percent for November. This was slightly worse than analysts' expectation of a 0.8 percent drop. The previous figure of 0.4 percent for October has been revised to 0.5 percent. The current environment in Japan is making it difficult for service consumption to follow an upward path
European Markets Open Higher, Despite Weak Fundamentals
Current Futures: Dow -58.00, S&P -5.80, NASDAQ -5.75
European Trade: Despite the very bad economic news going around, European equities found the strength to open above the breakeven line. Asian equities fell again tonight, while the U.S. markets will open for the first time this week.
The world's major indexes are trading just above the support level that has held the current valuation since early December. For the S&P, the support area is at the 830.00 area, while for the German Dax the support line sits at the 4290.00 level. Therefore, stocks might post some gains as some traders use this area as an entry point.
However, the long-term outlook still lies to the downside, seeing that the latest forecasts are grimmer than ever. The unemployment rate is forecast to rise another 2% both in the Euro-area and in the U.S. in 2009, adding a considerable number of jobless people to the system. The economic activity is set to stall this year, because of the lack of credit and liquidity. The U.S. GDP is seen contracting by 1.5% in 2009, at the same time as the Euro-area economy is seen shrinking by 1.9%. Germany's GDP, the largest exporter in the world, is set to contract by 2% in 2009, a record for the last few decades. As such, the IMF expects a considerable number of emerging economies to ask for international support from the fund.
Tonight, the Nikkei fell 191.06 points (2.31%) to 8,065.79. The Australian S&P/Asx lost 112.70 points (3.14%) to 3,476.60. In Europe, the German Dax rose 22.89 points (0.53%) to 4,339.03, while the U.K. Ftse gained 29.87 (0.73%) to 4,138.34.
Crude oil fell to a new low tonight, as consumption is likely to stay low for a long period. Crude oil for February delivery fell $2.90 to $33.60.
Gold moved lower, in-line with the crude market and with the dollar. Bullion for immediate delivery lost $11.70 to $828.20.
Previous Asian trade: Asian markets are back into the red zone, as it looks like the credit crunch has taken a new downturn. The equity markets were sent lower yesterday, after the U.K. government announced they would take a huge stake in RBS, while the bank posted the biggest loss in the U.K.'s corporate history. U.S. futures dropped a little more than 1% overnight.
The prospects of the global economy are getting worse, yet again. It looks like the major developed economies cannot avoid a rather prolonged contraction in 2009, despite the numerous attempts taken by the local governments and central banks.
The U.S. economy is forecasted to contract in 2009 by 1.5% by a team of private analysts, while the Euro-area's GDP is seen falling 1.9% in 2009 by the European Commission. Therefore, oil, which usually reflects the market's outlook for global demand fell to a new low in the past day. Only a few months back, oil was trading above the $140 benchmark, with estimates running as high as $200.