SWZ Producer and Import Prices Down 0.7%

We begin with some fundamental data out of Switzerland. Swiss producer and import prices were down 0.7% in December, a bigger than expected drop, though about half the decline saw in November. On the year, the index saw a growth rate of 0.4%

EUR Trade Deficit Widens as Exports Down 4.7%

European exports declined 4.7% in November, the fastest pace in more than 8 years. Foreign demand for the regions cars, trucks and planes is being hard hit as key trading partners went into recession and foreign companies and consumers scaled back purchases. Imports were down 2.5%, so the trade balance, in seasonally adjusted terms, fell further into deficit at 4.9 billion euros.

EUR/GBP - Euro Rallies From Support at 0.8850

The Euro-Pound pair hit a low overnight near .8840, which was support from last week's low set on Friday. The Euro has been pressured the last half of this week in anticipation of the ECB decision to lower rates and a sense of risk aversion in the markets. The Euro's fortunes changed today, and it rose 190 pips from its intra-day low to climb to the .9040 level.

EUR/USD - Euro Rallies After 5 Sessions of Declines

The Euro was also higher against the Dollar, breaking a streak of 5 days of declines. From yesterday's low near 1.3050 the Euro rallied 290 pips to climb above 1.33. The NY session saw the Euro giving up some of those gains as US equities fell in the middle part of the NY session, reversing some of the risk appetite that had helped the Euro.

US Consumer Prices Down 0.7%

Consumer prices in the US decreased 0.7% in December as the recession deepened, forcing stores to keep cutting prices to attract consumers. Prices were down 1.7% in November. The annual inflation rate showed an increase of 0.1%, which is the smallest annual gain since 1954. The core rate, which excluded food and energy prices was flat on the month putting the annual core rate at 1.8%, the weakest reading since 2003.

US Industrial Production Fell 2%

US industrial production fell 2% in December, more than doubling the decline expected by economists. Factories cut back on production in the face of weaker demand from both home and abroad. US exports, and most global trade numbers are sharply down to end 2008, while US retail sales endure the longest string of declines in at least 16 years. The number of plants in use meanwhile fell to 73.6%, the lowest level since 1983.

US UMich Consumer Confidence Improves

The preliminary release of the UMich consumer sentiment index for December showed an increase to 61.9 from November's 60.1. The future expectations sub-gauge rose as did expectations for inflation. The increase in the 12-month and 5-year forecasts for prices is a surprise considering how all incoming data has been showing prices receding as the recession deepened.

USD/JPY - Dollar Rises Above Recent Resistance

The Dollar-Yen pair broke out of its wedge today, pushing above resistance at the 89.80 level, and climbing to a new high for the week at 90.90. Risk appetite was boosted by the injection of $20 billion by the US Treasury into Bank of America, and also assurances it will provide a backstop against losses on some $118 billion of the bank's assets. There was some back and forth action during NY trading as stocks started positive, fell into the red, and then rallied in the late afternoon.

GBP/USD - Pound Has Volatile Back and Forth Session vs Greenback

The Pound-Dollar pair had a very volatile session, as it rallied 490 pips between yesterday's low and today's high, but then gave up about two-thirds of those gains in NY trading. The Pound was boosted by news that the government will set aside 200 million pounds to help property owners who face repossession in England. Gains in UK equities was also another factor supporting the Pound, but that sense of risk appetite dried up as US stocks went south.

USD/CAD - Loonie Tests 1.231, But Gives Up Gains

The swing back to risk appetite overnight, helped the US Dollar-Canadian Dollar pair go back to its upward sloping line of support at 1.2315. However, that support held and the pair rallied in the NY session to stay within its upward channel.

Upcoming Releases

Lets take a look at some important releases next week. Monday is a national holiday in the US, but the first half of the week will see consumer price data from New Zealand and the UK, along with the Euro-zone and German ZEW Economic Sentiment. Also on Tuesday, the Bank of Canada will decide on interest rates, where policy makers are expected to cut rates by 50 basis points. On Wednesday, we get UK unemployment data and meeting minutes from the Bank of England.