Japanese Data Shows Marked Deterioration - Risk aversion elevated

News and Events

The USD and the JPY during Asian session headed for their biggest monthly gains versus the EUR since October as growing evidence of a global slowdown increased. EUR/JPY is down 180 points to 114.97, EUR/USD fell to a low of 1.2876, and GBP/USD fell 100 points to 1.4190.

Yesterday's Wall Street session closed lower, as financials and weaker than expected US data weighed on sentiment. The major US releases all posted significant downside surprises. US durable goods orders for December dropped seriously. It came in at -2.6% (vs. 1.5% in November). New Home Sales came in again at a really low level, indicating this sector is far from recovering (-14.5% m/m).

In Japan, the economic data released was a real eye opener. Industrial production in Japan fell -9.6% m/m in December. A clear illustration on how the deteriorating global demand is disturbing the Japanese domestic economy. With Jpy still trading on risk aversion (but getting a lower push) and corporate and investor repatriation flows, the Jpy will continue to be supported. However, as risk appetite returns to the market and growth once again become the focus, we expect the Jpy to be sold heavily.

In Davos the biggest reaction was probably to George Soros comments: 'the Euro may not 'survive' unless the European Union pushes for a global plan to deal with toxic debt'.

Today's US first estimate of fourth-quarter GDP will capture the markets attention. Market expect that real GDP contracted by 5.5% at an annualized pace. If correct, this will be the biggest quarterly drop in more than 25 years.

Today Key Issues:

* 10:00 EUR CPI estimate y/y (Jan)

* 10:00 EUR Unemployment rate (Dec)

* 13:30 CAD GDP m/m (Nov)

* 13:30 USD Personal Consumption (Q4)

* 13:30 USD GDP annualized, GDp Price Index

* 13:30 USD Employment Cost Index

* 14:45 USD Chicago PMI (Jan)

* 15:00 USD University Of Michigan Confidence (Jan)

The Risk Today:

EurUsd capped at 1.3180, has done a sharp downside throwback, on the breach of 1.3030, towards its former trough, with some support as it approaches 1.2860. Below that level, a minor support line is at 1.2810, before the through at 1.2770. The main support line is at 1.2700. The currency pair is seen testing key supports.

GbpUsd is still encountering resistance (around 1.4355), after a spike at 1.4410. The currency pair remains in position for an upward correction, after the rebound from 1.4075. A return above 1.4340 is expected towards 1.4475 as the next key resistance. Above that level, the next target is at 1.4650.

UsdJpy The currency pair is seen between 89.20 (minor support line)( Below that level, the main point is at 88.90) and 90.15, as a neutral range, before a new test of 90.75 (resistance)

UsdChf retains a sideways motion, below a resistance line at 1.1640 (former top at 1.1715). The currency pair is seen between 1.1575 and 1.1410, before a return towards 1.1330.