Sterling is once again the big loser from surging volatility after Thursday's 200-point turnaround in the Dow from an initial 100-point intraday rally and Nasdaq's 1.40% decline resulting from several stock downgrades. Speculation of a rate hike from the People's Bank of China to aimed at rising inflation has also contributed to the Friday. Both the NASDAQ and the Dow exhibit bearish technical signs (charts below), suggesting further selling on Friday.

Market volatility could ensue on the 8.30 am release of the US retail sales in the event that we a see figure below the expected 0.2% rise in September after 0.3% in August. Ex auto sales are seen up 0.3% from –0.4%.

Also ate 8.30 am is September PPI release expected to show a 0.5% increase following a 1.4% drop. Ex -food and energy are seen matching August's 0.2% increase. We expect the importance of retail sales will overshadow the PPI, with the downside market risks seen ample in the event of a figure below 01%.

The 10 am release of the preliminary University of Michigan consumer sentiment survey seen up at 84 from 83.4. The 1-year inflation expectations index could also signal more structural weakness if it remains below 3.1% after falling to that level in September.

Euro caught up between ECB's hawkishness and risk averseness

Thursday's market-moving remarks from Bundesbank's Chief and ECB's Axel Weber indicating that …monetary policy can't lose sight of its primary mandate - even if it no longer supports an already robust economy, or acts restrictively are the most vocal expression of the central bank's hawkish directive, confirming our repeated calls that the their inflation focus outweighs European politicians' currency protests. Nonetheless, the euro's downside risks may emerge from further equity volatility, which will pare down carry trades and cause a temporary drag on the pair. All in all, in the event of continued market losses, euro could seek support at 1.4140 followed by 1.41, where renewed demand is seen emerging. Upside capped at 1.4250.

Sterling hits 2-week lows, eyes $2.0200

Cable's ongoing declines drag the pair to 2-week lows at $2.0249, confirming the pair's increasingly vulnerable foundation in the midst of slowing UK housing and falling inflation. Sterling 's high yielding status subjects it to protracted downside during bouts of surging volatility as is the case on Thursday. The Pound extends its decline against most currencies on mounting evidence of slowing UK housing and services sector, raising chances that the highest interest rate in the G7 cannot be sustained at its current levels. The currency is increasingly losing favor against AUD (10-year lows), NZD (2-month lows), EUR (recently at 34-month lows), CAD (18-moth lows) and CHF, while its gains versus the dollar and yen are proving increasingly fleeting.

Targets stands at $2.0185, followed by $2.0150. Upside capped at 2.0320.

USDJPY eyes 116.80

Deteriorating technicals as seen in the daily stochastics suggest a bearish divergence signaling a drop below 117 and onto 116.80. The accumulated bullishness in the pair may have to be curtailed significantly, especially considering the build up of net longs in USDJPY speculative contracts. It is our assessment that the market is underpricing chances of further Fed easing into the rest of the year, which makes for a greater downside potential once this pricing is corrected. Upside limited at 117.50.