Risk aversion remained the flavor into the London session as nationalization worries resurfaced with the US government now expected to take a 40% stake in Citi. European bourses are getting pummeled and currently off about -2.5% on average while US futures suggest the S&P will test the critical November intraday low support by 741 today. With month-end upon us, we are also hearing that of lot of the USD bullishness is also driven by portfolio managers rebalancing holdings.
Eurozone data continued to print weak as the unemployment rate rose more than expected in January to a two-year high of 8.2% from an upwardly revised 8.1% the prior month. Meanwhile, consumer prices slowed to 1.1% for the same month and remain well below the ECB 2.0% target. EUR/USD shed about -40 pips and was sitting near 1.2660 ahead of the NY open. The 1.2630/20 overnight lows are immediate support and below there should open up potential to 1.2550/00 next.
The yen crosses were lower. USD/JPY slipped -30 pips to 97.50 while EUR/JPY was punished a more aggressive -80 points into the 123.50 area. Profit taking on USD/JPY longs is likely driving the move here as the yen’s safe haven status continues to be questioned. USD/CAD also saw a decent 60 pip move higher to well above the 1.26 level and we are hearing this is driven by buying interest into the 1600GMT fix.
The NY session now has some top-tier economic data up that could elicit another leg lower in risk trades. The second cut on US 4Q GDP is expected to show a downward revision to -5.4% from -3.8%, in a reminder that things continue to be worse than previously perceived. Canadian industrial production also out at 1330GMT could see USD/CAD extend gains is it come in below the anticipated -0.5% decline for January. Chicago PMI at 1445GMT and the University of Michigan consumer sentiment indicator at 1455GMT round out the session.
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