Risk aversion was back in vogue overnight and carried over to the London session in a big way. Cable got trounced as UK GDP for 4Q ground down to a weaker than expected -1.8% from a previous +0.3% annual run-rate. GBP/USD shed more than -150 pips and was sitting near 1.3560/70 just ahead of the NY session. The one consolation was better than expected retail sales for December which rose +1.6% while the market was looking for a -0.7% decline (though we must admit that reportedly seasonality issues skewed the number to the upside here). While this is not a bad way to end the quarter, the reality is that their economic problems are far from over.

Data out of the eurozone continued to come in weak and none was more obvious than the dismal 38.5 print in the January PMI composite. While a touch better than anticipated, the index remains at the lowest levels since the survey began back in 1998. EUR/USD lost about -60 points in the session towards the 1.2800/10 area. The pair has consolidated between 1.2850/1.2750 over the last few hours and we expect a break to either side of these levels to usher in more pronounced price action.

The NY session brings no major economic events and thus the focus will revert back to the picture in US equities as 4Q earnings continue to disappoint overall. Futures are suggesting a -2% decline at the open and a worse than expected performance should see risk trades in FX grind lower. EUR, GBP, and the JPY crosses should all suffer on the follow. A surprise rally into the weekend, however, would usher in marked USD weakness as the safe haven gets sold in the place of risk.