Euro managed to stop the bleeding in NY trading and the session was more about consolidation than anything. The pair basically held a 1.4310 to 1.4250 zone but the close near the 200 dma (1.4281) is an ominous sign. The big level in the short-term looks to be 1.4250 now as a large amount of stop loss orders have been building in that zone. We would not be surprised if this area also had some optionality to it †in other words, traders defending against this level rendering some no-touch options worthless.

One of the currencies to watch was undoubtedly the Australian dollar. The early NY dip in AUD/USD into the critical 0.9175 area was seen as a steal to those who believe this pair is heading for parity on the back of extremely robust economic fundamentals and looming higher rates down under. There now seems to be some short-term profit-taking in the 0.9240/60 zone.

In terms of economic data, there was more bad news on the US housing front as the NAHB (homebuilder) index sank to 15 in January from 16 the prior month. The details of the report were also ominous as the prospective buyer traffic component slipped to the lowest level since the equity markets were plumbing the depths back in March of last year. The feeling is that weakness in the housing market is still somewhat baked in the cake and thus traders decided to readily ignore this piece of news.

Most traders will be glued to their favorite news stations up until the 815 pm ET hour when polls close in Massachusetts. Some unofficial exit polls show the Republican Scott Brown with a 10% lead for the so-called Class 1 Senate Seat formerly occupied by Ted Kennedy. Meanwhile, the market created for predicting such outcomes has Brown priced at a more than 80% chance of victory. One major market pundit put it very well when he noted that while specifically a Republican victory in and of itself is not a direct positive for the market, the fact that this would likely derail many of the administration's aspirations and create at least some form of gridlock (health care specifically) is a positive for risk. The stock market's track record shows that investors prefer when the government has little power to make major changes and this is not surprising given that expectations are such a large component of prices. We would think a Brown victory in MA has the potential to send risky assets higher and in the currency space, this means better bid (higher) yen crosses.