Currency Pair Overview Dollar Erases Early Losses Overnight

Overall, the dollar strengthened again, in the European session, against most of the other major currencies, with the Japanese yen being the exception. The cable is the weakest pair since the new trading day started, falling nearly 200 pips and breaking below an important support level. Ahead, the U.S. equity markets will be closed today, in observance of the Martin Luther King Jr. holiday and this may reduce the liquidity in the currency market. However, it should be noted that in the recent past, the currency market has had some very strong swings while one session was closed for trading.

The Euro (EUR/USD) fell 70 pips overnight, as the dollar strengthens across the board. At the Sunday open, the pair had a 75-pip gap, which helped the pair break above the 1.33 resistance level. Most of the selling came in the European session, as liquidity increased. 

The Pound (GBP/USD) tumbled more than 200 pips in the overnight session, breaking below the 20-day simple moving average and at the same time, falling below the low reached on Friday. Most of the selling came in the European session, shortly after the London open. Tonight, at the Sunday open, the cable had the biggest gap from the majors.

The Rightmove house price index for the month decreased to negative 1.9 percent, month over month. There is also a very low level of new listing coming to the market with only 43,000 this month when compared with 89,000 in January of 2008. This has limited homebuyers’ choices. Only one area in the U.K. had an increase from the previous month, East Midlands.

The Aussie (AUD/USD) has been caught trading between the 20 and the 50-day simple moving averages in the overnight session. Both are important swing areas, requiring strong momentum if the pair is going to break above or below. The aussie has a very light economic calendar this week.  

The inflation estimate for Australia, released this evening by TD Securities, decreased by 0.2 percent month over month for December. This is the first time that the TD-MI inflation gauge has fallen for three consecutive months. In the past 12 months the gauge rose by 2.2 percent which was the lowest rate seen since May or 2005

The Cad (USD/CAD) tried to take out the neutral pivot point (1.2440) during the Asian and European sessions. Up to now, the pair has failed to pull the move, but the cad might be pulled higher by the oil link. Subsequent to the strong buying from the last period, the cad trades above all the important moving averages.

The Swissy (USD/CHF) continues to trade within the same range as it did during the past week. The resistance area is formed by the 1.1250 area, while support is found near the 1.1120 area. The swissy will need very strong momentum in order to break from here.

Swiss retail fell in November from one year earlier. The release number of -1.4% is lower than market expectations of 1.5%. Over the last few months, retail sales had risen strongly, but it seems this trend will reverse, in-line with the fatigue seen in the economy. Nominal retail sales are down 0.5% from one year earlier in November.

The Yen (Usd/Yen) moved lower during the overnight session, breaking below the 20-day moving average. The pair fell 50 pips, after opening with a 25-pip gap from the weekend trading. Later this week, the Bank of Japan is expected to announce its monetary policy.