AUD/JPY - Slide in European Stocks Brings Back Risk Aversion

We start with the Aussie-yen pair as the risk appetite we saw yesterday, gave way to further risk aversion. Stocks were up in Japan, which helped the pair reach a high near 60.28, but European trading saw today's gains pared down to reach a low at 58.16. Stocks in Europe were hurt by lower oil prices, which fell as much as $3.40 by 3 PM EST, which hurt oil producer shares and commodity currencies. The European markets staged a late recovery as NY indexes stayed green for the morning.

JPN Corporate Prices For Services Fall 2.5% on the Year in Dec

In fundamental news from the Asia-Pacific region, Japan showed that the index that measures how much companies pay for services fell 2.5% on the year in December, and 0.5% on the month. That was close to expectations and shows the decrease in prices that has been a hallmark of the end of 2008. The main decline was in ocean freight as oil prices tumbled in the second half of 2208.

AUS Producer Prices Rise More Than Expected in 4th Quarter

In Australia, producer prices for the 4th quarter surprised forecasts, as the increase of 1.3% was much higher than expected. On the year prices were up 6.4%. Increases in the prices for industrial machinery and equipment offset price declines as a result of lower petroleum refining.

AUD Business Confidence Rebounds From Record Low Levels

Aussie business confidence for December rose in December off its all time low. The overall sentiment index climbed 10 points to -20, while the business conditions gauge, a measure of hiring, sales and profits, rose to -6 from -17. The question now remains if this was a temporary bounce or the start of a turning point from overly pessimist recent readings.

GER Ifo Business Climate Shows Slight Improvement

Moving on to Germany, the Ifo Business Climate for industry and trade showed a slight improvement for the month of January, increasing to 83. The two components of the Business Climate changed in different ways: Whereas the firms again assessed the current situation as worse, they are a little less skeptical about their business in the next six months.

GER Import Prices Fall More Than Expected

In a second release from Germany, import prices fell more than expected, registering a 4% drop on the month, and is now down 5.1% compared to a year ago. That annual rate was the highest price decline since November of 2001.

EUR/USD - Euro Weakens FollowingTest of 1.3330

The Euro-Dollar reached a high near 1.3330 in the wake of the German releases, but came back down as the mood for risk appetite soured in the European session. The pair found support near 1.3120, so the Euro managed to hang on to its impressive gains from yesterday.

UK CBI Retailers See Rough January

In the UK, 16% of retailers said year-on-year sales rose in the first half of January, while 63% said they were down. The resulting balance of -47% represents another heavy fall in sales, but the decline was slightly slower than in December.

EUR/GBP - Pound Strengthens As Concerns Over Bank Bailout Eases

The Euro-Pound pair as we mentioned yesterday, looked ready for a dip and it followed through with that today, falling to a new one-week low of 0.9280. The Pound was boosted today as investors' concerns eased about the amount of money needed to bail out UK banks. That was a theme started yesterday by Barclays.

GBP/USD - Pound Gains to 1.4240, Cuts 50% off Recent Decline

The Pound-Dollar pair, rose to 1.4240, breaching resistance at the 1.40 level and extending the gains from yesterday's sharp rally. The pair has now climbed 600 pips from its 23 year low near 1.35. The rally has pared about 50 % of the fall we saw in the Pound from January 16th to January 23rd.

US S&P/Case-Shiller House Price Index at Record Lows

In US news, the S&P case Shiller house price index continued to show broad based declines in the prices of existing single family homes across the US in November. The 20-city index showed an annual record decline of 18.2% while the 10-city index matched its record decline from last month at -19.1%.

US Consumer Confidence Falls to New Low, Richmond Fed Still Negative

In 2 other releases, consumer confidence, as measured by the Conference Board, fell to a new record low in January of 37.7. Consumer attitudes towards both current and future conditions deteriorated. Meanwhile manufacturing activity in the Atlantic region for January as measured by the Richmond Fed index remained near all-time lows seen in December, though the pace of contraction was slightly slower.

USD/JPY - Yen Strengthens On Weak European Equities

The Dollar-Yen was down today after rising in the Asian session. The pair broke below its short term line of support at the 89 level to fall to 88.40. The triangle pattern we showed yesterday has been breached on the bottom now which could suggest further Yen gains. However there may be a limit to how much the Yen can strengthen as the Bank of Japan said it may intervene in the markets if the pair falls to the 87 level. The Yen's gains came despite US equities trading in the green.

Upcoming Releases

Looking at the upcoming fundamental schedule, tonight Australia will post its leading index and its consumer prices for the 4th quarter. Overnight, Germany releases data on consumer confidence and consumer prices and Switzerland reveals its leading index.

Tomorrow afternoon, we the FOMC finished up its meeting and will all eyes will be on the statement for more clarification how the Fed will try and ease the problems in credit and financial markets. Also on tap in the afternoon will be the interest rate decision by the New Zealand central bank which is expected to slash rates from 5% to 4%, a 100 basis point reduction.