Currency Pair Overview The Dollar Surges On Strong Volume

Overall, the market continued to buy dollars into the Asian session, as the risk-aversion phase continues. As in the last period when risk-aversion was back in the market, the recorded volumes were exceptionally strong, suggesting that large institutions went shopping to realign their positions. Ahead, the calendar is light in the European session, but the U.S. session starts with two releases that are likely to move the market.

The Euro (EUR/USD) is testing the 1.33 area, for a second consecutive day in the Asian session. Yesterday, the pair fell 150 pips on a very strong volume, but could not break any lower than this. On Thursday, the market expects the European Central Bank to reduce the overnight rate by 50 basis points, down to 2.00%.

The Pound (GBP/USD) is driven lower by poor fundamental data coming out of U.K. With an economy that is being forecast to contract very quickly next quarter, and with local authorities unable to do much, the pound looks like a certain victim. The pair fell 250 pips yesterday and an additional 50 pips in the Asian session, breaking under both the 20 and 50-day moving averages.

Retail sales in the United Kingdom fell 3.3 percent on a like for like basis and dropped 1.4 percent on a total basis from December of 2007. This has been the worst December figure seen since the survey started 14 years ago. In the United Kingdom, house prices took a fall according to the Royal Institute of Chartered Surveyors. The report has shown that 73.0 percent of surveyors reported a decline rather than a rise in house prices in December.

The Aussie (AUD/USD) tumbled yesterday nearly 200 pips, reflecting the strong selling from the commodity market. The pair headed lower during the trading session, with no time to breathe. By the end of the session, the pair ran out of the pivot point and broke under the 20-day moving average for the first time in a month. In the Asian session, the aussie fell another 50 pips, trading slightly above the 50-day moving average.

The Cad (USD/CAD) rose strongly, reflecting crude oil’s decline. The pair rose 300 pips, the most in a while, as oil was heading towards the current low of the year. The cad finished the U.S. session just under the 1.2250 resistance area, which means the pair will need strong momentum to break any higher.

The Swissy (USD/CHF) failed to break above the 1.20 resistance area again and advanced as much as 130 pips yesterday, however, at the close of the trading day, it left only 40 pips, forming a bearish pin-bar formation. In the Asian session, the swissy rose 50 pips.

The Yen (Usd/Yen) fell yesterday for the fourth consecutive day, shedding every gain made in the last three weeks. The yen traded in a very tight range in the first part of the day, but started to move lower during the European trading hours. Tonight, in the Asian session, the yen barely moved.

The M2 money stock for Japan has increased by 1.8 percent year over year in December. This figure is slightly higher than the 1.7 percent, as forecasted and is up from the November figure of 1.8 percent. Japan's current account for the month of November came in at 650 million yen, which was slightly lower than Octobers 1.1 billion. The dramatic decline this year is mainly due to sluggish exports as consumers cut spending amid the financial crisis.