Overall: The currency market seems to have started the holiday season a little early. The majors traded in very small channels around the neutral pivot points in the overnight sessions but a stronger dollar trend became apparent in N.Y. as the greenback advanced against most majors except the loonie.
In U.S. economic news, third quarter GDP contracted 0.5% anualized, as expected. Economists are now estimating the fourth quarter may contract as much as 6%. November sales data on new and existing homes continued to show severe weakness in the sector, but consumer sentiment made somewhat of a comeback as prices, especially for energy, declined sharply. The news on existing sales was especially bad; sales declined 8.6%, inventory expanded to an 11.2 month supply and median prices fell the most on record.
The Euro (EUR/USD) touched the neutral pivot point (1.3990) during the Asian session, finding resistance near the 1.4000 level which previously acted as an important area in the pair’s price actions. Currently, the euro is trading around the 50.0% retracement level of a trend that lasted from July to late November and the dollar gained about 40 pips as N.Y. came to a close.
The Euro-area current account was released at -6.4B, better than analysts’ expectations of -7.3B. The previously released number, for the month of September, was revised from -10.6B to -8.8B. The report shows that the Euro-area had an inflow of direct and portfolio investments in October, while exports and imports were little changed.
The Pound (GBP/USD) moved only 60 pips overnight, a small range for the pair during this timeframe. The pound has been sold heavily in the last few weeks as the Bank of England seems set to follow the Fed into a quantitative easing policy. Earlier this month, the pound reached an all-time low against the euro and the swissy and that trend looks set to continue heading into the new year. The dollar gained about 90 pips on the pound during the N.Y. session.
In the third quarter, the U.K. economy contracted by 0.6%, slightly more than the revised read. In the second quarter, the U.K. economy posted a 0.0% read. Compared with the third quarter of 2007, the U.K. economy grew 0.3%. The number of mortgages approved by the BBA fell to a record low of 17.8K, lower than analysts’ expectations. The previously released number, for the month of October, was revised lower, to 20.8K. U.K. current account deficit reached £7.7 billion in the third quarter of 2008, up from a deficit of £6.4 billion in the second quarter, revised down from £11.0 billion
The Aussie (AUD/USD) moved in a tight 30-pip range during the overnight session, below the neutral pivot point (0.6835). In the last few days, the aussie has failed to trend properly and has traded mostly in small ranges near support or resistance levels. The dollar found about 30 pips worth of strength during N.Y. trading, following the pattern of the other higher-yielders.
Australia's leading index decreased for a second month in October, the Conference Board said today, as large increases in rural goods exports and the money supply were offset by declining share prices, building approvals and yield spreads. The decline to -0.5% in the leading index suggests that slow economic growth will continue in the near term.
The leading index has weakened this year, with its growth essentially stalling since the summer and declining over the past two months. Meanwhile, the coincident index, a measure of current conditions, increased again in October as new data on household income became available.
The Cad (USD/CAD) has moved higher for the last four days. The cad rose 50 pips overnight, reflecting the weakness in the oil market, one of Canada’s main exports. During the last two days, the cad formed two opposite pin bars, showing the market’s indecision. The loonie advanced about 60 pips on the greenback during the N.Y. session as oil gained about $1 per barrel on the NYMEX.
The Swissy (USD/CHF) moved below the neutral pivot point (1.0945) during the overnight session. The pair’s trading range only reached 40 pips as the swissy was unable to break significantly in either direction, to trade just above the 61.8% retracement of a trend that lasted from July to early December. The franc fell about 20 pips during the N.Y. session as treasuries traded mixed.
The Yen (Usd/Yen) traded in a tight channel during the overnight session, remaining close to the U.S. session closing price, to move just above the 90.00 support area that has acted as an important swing point recently. The yen fell about 60 pips to the greenback during the N.Y. session even as stocks looked set to decline on the day.