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• Chicago PMI will be the last piece in the ISM jigsaw
• Swedish GDP the major event in Scandinavia - it will be very weak

Markets Overnight

USD Floats on Faltering Economy

The Dollar gained against several of it major currency pairs, such as the EUR currency cross in early trading yesterday. However, those gains were quickly eroded as a glut of poor economic data from the U.S. helped to drive the pair back to its opening price level. The market absorbed less than stellar economic reports from the U.S. economy. Poor production data, lower housing numbers, and an increase in new unemployment claims took the energy from the EUR bulls and sapped the earlier gains from the EUR/USD.

The pair began the day at 1.2716 and rose to a high of 1.2809. The USD closed up vs. the EUR by only 2 pips at 1.2732. The release of more poor performing data from the U.S. helped to sap the added risk taking in the forex market and the currency pair ended the day near its opening price.

Against the Dollars other currency crosses, however, it lost some ground. The Dollar closed down 25 pips vs. the JPY at 97.58, reversing 3 days of gains. This may have been due to better-than-expected economic figures released from Japan. The GBP/USD made a slight correction in yesterday's trading, as the Pound closed up 52 pips on the Dollar to 1.4297, making some amends for the previous days 300 pip decline against the greenback.

European bourses are getting pummeled and currently off about -2.5% on average while US futures suggest the S&P will test the critical November intraday low support by 741 today.

Eurozone data continued to print weak as the unemployment rate rose more than expected in January to a two-year high of 8.2% from an upwardly revised 8.1% the perior month. Meanwhile, consumer prices slowed to 1.1% for the same month and remain well below the ECB 2.0% target.

EUR/USD shed about -40 pips and was sitting near 1.2660 ahead of the NY open. The 1.2630/20 overnight lows are immediate support and below there should open up potential to 1.2550/00 next.

The yen crosses were lower. USD/JPY slipped -30 pips to 97.50 while EUR/JPY was punished a more aggressive -80 points into the 123.50 area. Profit taking on USD/JPY longs is likely driving the move here as the yen's safe haven status continues to be questioned.

USD/CAD also saw a decent 60 pip move higher to well above the 1.26 level and we are hearing this is driven by buying interest into the 1600GMT fix.

In a major downgrade, Australia's central bank on Friday predicted the economy would barely grow at all in 2009, while core inflation would return to its target a year earlier than expected, seemingly leaving the door open for more cuts in interest rates.

In its quarterly Statement on Monetary Policy, the Reserve Bank of Australia (RBA) said a deepening global recession had darkened the outlook for exports and business investment, likely leading to a contraction in the domestic economy this year even after aggressive rate cuts and government spending packages.

"The international situation has deteriorated markedly over the past few months, and this is making for a much more difficult environment for growth of the Australian economy," wrote RBA Governor Glenn Stevens in the introduction to the 69-page report.

"Despite the significant stimulus already provided by monetary and fiscal policy, the unemployment rate is forecast to increase materially over the next year or so," said the statement.