Yen activity steps up with yen currency crosses emerging from the shadow of GBP amid a fresh ascent in global risk aversion. Markets to keep watch on Paulson/Bernanke’s testimony shedding more detail on the immobilization of half the $700 billion TARP package. FX traders to watch whether the Dow and S&P500 continue closing above the key 8,100 and 840 levels before considering fresh trades on the low yielding JPY. Japan’s official descent into recession hasn’t fared negative for the JPY as the recession is seen another factor dampening Japanese outflows into global markets. And the fact that more than half of the planned TARP package will remain untapped into year-end is also another excuse to keep any optimism restrained.

The expected slowdown in October PPI (8.30 am EST) is seen more than three times the 0.4% drop in September, but the main focus is to emerge from the core rate, seen at 0.1% from 0.4%, underscoring falling energy prices. Annual CPI is seen falling to as low as 6.5% from 8.7%.

The September TICS report is expected to show a recovery following net negative balance in the prior two months, which were largely driven by net foreign selling in Agency securities following the plunge in Fannie/Freddie stocks.

November Homebuilders Survey index seen matching October’s record low of 14.

The release of the Philadelphia Fed economic survey is the oldest survey on the US economy, showed mostly downward revisions in growth, employment and inflation, paving the way for further downgrades in Wednesday’s release of the tendency forecasts from the Federal Reserve when the FOMC minutes are due out. The Philly Fed Survey sees recession lasting 14 months from its beginning in April 2008. The survey expects Q4 GDP at -2.9% from prior forecast of +0.7%, average monthly payrolls at -222.4K in Q4 from prior -450K and as much as -450K per month in Q1 2009. Average unemployment rate in Q4 at 6.6% from 5.8% and 7.0% in Q1 from 6.0%. Core PCE price index down to 2.0% in Q4 from 2.1%.

UK CPI posted its biggest decline in 11 years when the annual CPI growth fell to 4.5% vs. expectations of 4.8% from the previous 5.2%, showing the first decline in over a year. The decline in core annual CPI to 1.9% from 2.2% vs. expectations of 2.2% also highlights the depth of disinflation, opening the door for as much as a 50-bp rate cut next month and enforcing GBP bears into prolonged selling. Interim target stands at $1.4920, followed by $1.4865. Sterling dragged by a combination of CPI weakness and prolonged selling in US equity futures. Looking at the 4 and 2 hour GBPUSD chart, note peaking momentum as measured by the Williams % R oscillator, which is falling off its highs in both time horizons. With resistance seen capped at $1.5045, there lies ample room towards $1.4975, backed by $1.4920 and $1.4870.

USDJPY weekly chart tests the bottom of a symmetrical triangle at 95.20, but 95.50 has first to be tested as it presents the 61.8% retracement of the decline from the 103.05 high through the 90.89 low. Upside capped at 96.80 followed by solid (longer-term) pressure point at 98.45. Other yen crosses also testing the bottom of their triangles.

EURJPY probes the 121.20 trend line support, a break of which could prolong selling towards 120.15. Resistance stands at 122.00. AUDJPY tests TL its support at 61.70, a break of which seen extending towards 61.00, coinciding with the 61.8% retracement of the rise from the October low to the November high. GBPJPY testing its own TL support at 144.25, support by 142.75. Upside capped at 147.

EURUSD is increasingly confined to the 300-point range centering around $1.2650 as the focus shifts towards yen pairs from a risk appetite stand point. Euro pushed higher yesterday despite the late session sell-off in equities as the focus was primarily US-based in light of dismal US figures from NY Fed. The higher than expected increase in US October industrial production was seen largely as a giveback of the sharp plunge in the September figure, which was largely caused by Hurricane Gustave and Boeing layoffs. Resistance is seen imposing at $1.2750 until Wednesday’s CPI and Fed forecasts offer fresh direction. $1.2580 stands as an interim foundation, unless bears test the 8000 and $790 lows in the Dow and S&P500.

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