Talking Points

* Japanese Yen: Runs into Resistance At 90.0
* Pound: Pares Early Gains On Safe Haven Flows
* Euro: Industrial Production Falls To 18 Year Low
* US Dollar: Advance Retail Sales On Tap

Euro Pares Earlier Gains As Industrial Production Falls to Lowest level In 18 Years

The Euro would gain almost 200 bps from yesterday's low reaching as high as 1.3341 before sharply falling ahead of the Euro-Zone industrial report aided by rumors that the Irish PM was seeking aide form the IMF. Indeed, traders were expecting that activity in the region had significantly decline as economists had forecasted a 2.2% decline for November and a 6.1% drop year-over-year. Although the monthly print of -1.6% was better the estimates the annualized rate of -7.7% was the lowest in 18 years. Meanwhile, French CPI fell to 1.0%adding to deflation concerns and German GDP slowed to 1.3% in 2008 after 2.5% the year earlier. The single currency would find support at 1.3200 and may consolidate above this level ahead of the U.S. consumption report.

Falling prices, declining activity and slowing growth continues to be the themes dominating the Euro-Zone which is building the case for more easing from the ECB. The central bank is expected top cut their benchmark rate by 50 bps at tomorrow's policy meeting, despite recent comments from President Trichet that growth will return in 2010. The 2.4% and 2.8% declines in durable and intermediate goods respectively, demonstrate that consumers and business are unwilling to make commitments beyond their short term needs. Therefore, business wil continue to look to cuts costs in order to survive the contracting economy which will lead to more jobs losses. This is particularly evident in Germany, the regions largest economy where a contraction of at least 0.8% is forecasted for 2009.

The Pound fell sharply after bullish momentum during Asian trading pushed the Pound/dollar pair to as high as 1.4700 which was over 200 bps higher than yesterday's low. However, the psychological resistance level would send the pair falling sharply over 200 points as risk aversion flows dominated price action. The Sterling continues to find support at 1.4500 which could lead to another retrace today. However, if the level is broken then we may see extended losses for the Pound and a re-test of 1.4351 the December low.

U.S. advanced retail sales are expected to have decline for a sixth month in December as the Holiday shopping season was worse than expected. Economists are forecasting a 1.2% decline which follows a 1.8% drop the month prior. Consumers have continued to retrench as the troubles of the financial market, slumping home prices and a weakening labor market have sunk their confidence. A dour consumption report will add to the current concerns over corporate earnings for 2009, which could fuel current risk aversion sentiment. The dollar saw some weakness overnight ahead of the report but has pared those losses signaling that safe haven flow may indeed drive price action. Additionally, Citigroup's dismantling of its banking supermarket in an effort to generate cash to cover expected losses and save the bank has reignited fears over the financial system. The bank has agreed to sell its Smith Barney brokerage unit to Morgan Stanley and is moving forward to unload other units as it continues to restructure in an effort to survive in the current environment.