The EUR and GBP had a very tough day yesterday, while the JPY was by far the primary beneficiary. Risk aversion was rampant, due to the worries over a Greek downgrade and poor US economic data. This includes a durable goods number, which came out strong but, in further investigation, was weaker than the headlines had suggested. While the EUR was suffering from gloomy comments issued by rating agencies and scene of domestic social unrest splashed all over the television, the sterling had some data issues. Business investment data fell nearly 6% in Q4, sharply below expectations. While initial estimates are generally volatile and we don't believe it was the only factor, the number highlights that business activity might not have the momentum the MPC has forecasted. And if UK growth is not heading in the right direction and inflation is expected to decline in the longer term, then the use of QE should be revisited. Markets are buzzing with theories around the potential revaluation of the Chinese CNY. According to local newspapers, China is running stress tests on labor-intensive industries to measure the effect a stronger CNY would have on earnings. Traders piled in to the Yuan pushing the 12 month NDF up 0.1%, as speculators now expect that the China Death trade would be soon coming to an end. We are steering clear of the hype and expect China to move forward in a slow & deliberate manner. And in Japan a slew of encouraging economic data in retail sales, industrial production (although CPI excluding fresh food stayed in deflationary territory) gave Finance Minister Kan reasons to sound slightly up beat. However, after yesterday's surge, the JPY did not react to the better data as the currency is driven more by US yields and global risk appetite, than domestic economic data. Market sentiment is still predominantly being driven by developments in Europe; specifically the potentially calamitous consequences if Moody's downgrades Greece's credit rating - thereby rendering Greek bonds ineligible as collateral with the ECB. Nevertheless, despite these concerns and the uninspiring European data this morning (Eurozone confidence -17 from -16 the month prior, economic confidence 95.9 against forecasts for 96.4), the EURUSD has not managed to push to new lows beyond the 19 Feb 1.3444 level, which may be an indication that widespread short positioning in the pair is beginning to act as a headwind to the sell-off. Today will be a critical day for major currencies, with a number of major economic releases. Germany and the Eurozone CPI will be the key highlights of the morning, with the latter forecast to slow dramatically by -0.8% MoM, thereby keeping interest rate expectations for the Euro area well and truly anchored. We will also see the second estimate of UK Q4 GDP, which currently stands at a meagre 0.1% from the advanced reading (which is printing as we go to press). Acknowledging the tendency for UK GDP to be revised higher from advanced readings, markets are looking for an upward revision to 0.2%, but GBPUSD remains under heavy selling pressure for the time being. In the afternoon the US schedule includes US GDP (second reading), which is anticipated to remain at 5.7% QoQ annualized, the Chicago PMI (59.7 expected, 61.5 last), and U. Mich consumer confidence (73.9 expected, 73.9 last) and existing home sales (0.9% MoM expected, -16.7% last).

Forex-Chart