Dollar and Yen gap higher as the week starts on a couple of risk aversion factors. Firstly, there were talks over the weekend about deepening debt crisis in Eastern Europe and the potential threat to create a meltdown in the Western Europe banking industry. Secondly, Japan posted the third quarter of contraction in GDP and there were talks that opposition party is asking for Nakagawa to step down. Also, the tone down of rhetoric on Yuan and the no mention of yen also give the yen a node for the rally.
Technically speaking, development in dollar index is consistent with our view that a breakout from recent range of 83.58 and 86.81 is due as the index climbs further to 86.86. Such consolidation could have completed as a triangle at 85.59 and as long as this support holds, further rally is now expected. Sustained trading above 86.81 will confirm resumption of rally from 77.69 and target 88.46 high. Below 85.59 will, on the other hand, suggests that consolidation is not completed yet and turn short term outlook neutral again.
Released earlier, Japan's GDP contracted -12.7% (saar) in 4Q08 (consensus:-11.7%, 3Q08: -2.3%), the biggest decline since 1974 oil shock. The real GDP also shrank -3.3% qoq, following a drop of -0.6% in the previous quarter, as exports slumped by -13.9% qoq. Industrial production dropped -9.8% mom, -20.8% yoy in Dec with capacity utilization dropped -11.8%.
In the UK, Rightmove house prices rose 1.2% in February (January: -1.9%), the first monthly gain since May 2008, suggesting decline in house price may have bottomed out. However, on annual basis, the reading declined by an unprecedented 9.1% (January: -7.3%) since the index began in 2002.
There's not much data to be released in US session on market holiday in the US and Canada. Canada's international securities transaction report is anticipated to show non-resident reduced CAD -2B of Canadian securities from their holdings in December after a sizeable drop of CAD -4.3B in November. Moreover, manufacturing shipments in Canada probably plunged -6.3% mom in December following a drop of -6.4% in the previous month.