Profit-taking has taken the edge off what was an aggressive move towards safe haven assets. Demand for yen dominated the fx market in Asian hours and the move initially accelerated in early London hours with EUR/JPY plummeting to a low of 130.44 before bouncing back to the 131.00 area. Mirroring the move in EUR/JPY, EUR/USD also troughed early in the London session at 1.3861 before bouncing back above 1.3909. Cable found buyers in the 1.6050 area but has failed to push above last night's close at 1.6140. The AUD and the NZD are lower vs the USD. The CAD, however, has found support on yesterday's encouraging Canadian economic data.

Market sentiment continues to be undermined by fear that the global recovery may take longer to emerge than had recently been expected. The start of the US corporate earnings season will shine further light on the relative strength of activity. Japanese data overnight fed nervousness with May machine orders falling -3.0% m/m in June despite expectations for a rise. The Japanese current account surplus, while still huge, was a weaker than expected JPY1301.8 bln in May reflecting the poorer performance of exports. USD/JPY pushed lower to 94.10 in early London hours as demand for safe haven assets overwhelmed any concerns over the weak Japanese economy. Profit-taking has subsequently lifted USD/JPY a little back to the 94.25 area.

Cable is presently only moderately weaker relative to last night's close. The Nationwide's Jun consumer confidence data provided some relief by rising to a stronger than expected 58 from a revised 54 in May. The Halifax house price index, however, dropped by a stronger than expected -15% y/y enhancing the theme that while the UK housing market may be in the process of stabilising, this will likely be a long and rocky road. Overall, the UK economic outlook is still reeling from last week's surprisingly strong downward revision to Q1 GDP to -2.4% and the implication that the economy has now further to crawl before growth can be re-established. This theme was extended by yesterday's June GDP forecast from the NIESR which estimated that the economy stagnated in Q2. While recent sell off will have shaken out many long positions, cable continues to look vulnerable.

The CAD is finding support on the back of yesterday's business activity, buildings permits and bankruptcies data. In contrast, better data is not helping the AUD. Australian consumer confidence has hit a 19 mth high and home loans approvals rose 2.2% m/m in May. The AUD, however, remains pressured by the sharp fall in risk appetite.

This afternoon the market will be keeping an eye on the G8 conference which will be getting under way in Italy. The return home of the Chinese President Hu to address ethnic unrest in China may have lessened the likelihood that the theme of the USD as a reserve currency will be given close examination. However, irrespective of whether this is discussed this week, this theme will remain on the table for many years to come. US consumer credit data for May is due.