Curreny Pair Overview Dollar Continues To Strengthen, Helped By Risk-Aversion

Overall, the market continued to buy the dollar’s “safe haven” status and sold the major currencies against the greenback. Most pairs are heading towards the lowest value in the last few months. In addition, if the dollar continues to post gains, the majors will soon test multi-year lows, similar to what the pound is doing right now.

The Euro (EUR/USD) is currently trading slightly above TheLFB S2 (1.2825), after it tumbled more than 200 pips in the overnight session. The pair broke briefly below the low of the previous three days of trading, reaching the lowest value in the last month. Since 18th of December, when the Euro topped near the 200-day moving average, the pair has lost 13%.

The European PMI service shows that both the service and manufacturing side of the economy are still in a contraction phase. This is the eight consecutive month when the two indexes have shown a read below the 50.0 level, which separates contraction from growth, however the two indexes ticked slightly higher this month. The German service PMI was released at 45.4, showing the industry has contracted during the last four months, while the manufacturing index came at 32.0, as expected.

The Pound (GBP/USD) has broken well below the 1.3620 area, a 23-year low. The pound tumbled nearly 40% in the last year, sent lower by very poor releases coming out of the U.K. However, in the last days, institutional traders suggested that the U.K. downturn may have been overstated. Despite this, the pair is still making new lows.

In the fourth quarter, the U.K. economy contracted by 1.5%, a much stronger decline than the expected 1.2%. In the third quarter, the U.K. economy posted a -0.6% read. The two consecutive quarters indicate the U.K. economy has officially entered into a recession, similar to the Euro-zone and U.S. economies. Retail sales in U.K. unexpectedly rose in December, coming in at 1.6%. However, the release data is not seasonally adjusted, as it was in the previous releases due to ”exceptional trading conditions”.  

The Aussie (AUD/USD) fell 120 pips, driven lower by the commodity market. The pair is now trading near the 0.6400 support, last seen in December. If it breaks lower, the aussie will reach a one-month low, having full chances of extending the declines over the next period.

The Cad (USD/CAD) rose approximately 80 pips since the Asian session started. The pair moved higher, as oil, the commodity that backs the pair fell in the last trading sessions. The outlook for the cad lies to the upside, as some say the BoC will follow the Fed.

The Swissy (USD/CHF) is testing TheLFB R2 (1.1630) after breaking above the 1.1600 area, where it topped in the last few days. The pair rose 100 pips overnight, driven higher by the euro-link. The swissy is set to gain 500 pips this week, the most seen in a while.

The Yen (Usd/Yen) declined tonight for the fifth consecutive day, driven lower by risk-aversion. This happens, despite the numerous intervention threats coming from Japan. The S&P futures also moved lower overnight. The yen also trades near multi-year lows against the major crosses, especially against the pound, where it touched the lowest value on record.

The Japanese all industry activity index came in at negative 2.3 percent for the month of November, which was slightly worse than analysts’ expectations of a 2.3 percent reading. Among the individual sectors, construction gained 0.8 percent while industrial production plummeted 8.2 percent after falling 2.5 percent the previous month. In addition, the tertiary industry was down by 0.9 percent after a gain of 0.5 percent the previous month.