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Top Stories

• US governmet and Citi reach a deal to increase ownership board must go
• Eastern Europe gets 31 Billion aid from World Bank
• Asia rebounds but European equities lower on last day of trade for the week
• Oil back to $45/bbl as investigation starts over USO ETF positions in London
• Gold continues to drift belows $950/oz as latest run past $1000/oz fails

Overnight Eco

• NZD Building Consents sink -13.10% against -6.0% last
• JPY Manufacturing PMI 31.6 vs. 29 last
• JPY Household Spending declines sharply to -5.9% from -4.6^ last
• JPY Tokyo Core CPI hotter at 0.5% vs. 0.3% forecast
• JPY National Core CPI flat at 0.0%
• JPY Unemployment Rate 4.1% vs. 4.5% called but mainly due to retirement
• JPY Prelim Industrial Production -10.00% as expected
• JPY Retail Sales better at 0.6% vs. -0.5% called
• GBP GfK Consumer Confidence -35 vs. -39 called
• EUR CPI in line at 1.60%

Event Risk on Tap

• CAD Current Account expected at -6.0B
• CAD RMPI expected at 0.4%
• CAD IPPI expected at -0.3%
• USD Prelim GDP expected at -5.3%
• USD Chicago PMI expected at 34.0
• USD Revised UoM Consumer Sentiment expected at 56.0

Price Action

• USD/JPY comes under heavy profit taking dropping to 9700 after further corporate demand for dollars fails to materialize
• AUD/USD weighed down by AUD/JPY sales back through 6400
• GBP/USD loses 1.4200 as further job losses in UK economy feared
• EUR/USD drops through 1.2700 on EUR/JPY sales but finds support at 1.2650

After a relentless rally higher that saw the pair climb nearly 500 points without pause, USDJPY finally saw some selling in Asian and early European trade dropping back towards the 9700 handle as profit taking kicked in on the final trading day of the week.  Currency trader is Tokyo were geared for yet more month end corporate demand for dollars but when it did not materialize selling quickly ensued with USD/JPY falling nearly 100 points in a hour.

 

On the economic front the yen was buoyed by better than expected unemployment data which printed at 4.1% versus 4.5% forecast,  but the underlying numbers were far worse than the headline suggested with most of  the reduction  due not  to increased labor demand but rather a sharp rise in retirements. Furthermore Japanese consumer demand continued to sink with Household spending declining a whopping -5.90% versus -4.8% the month prior while Industrial Production data showed a double digit drop of -10% as expected.

In fact it is difficult to find any silver lining in tonight’s data as Japanese economy shows no signs of stabilization. Even the decline in the yen appears to offer little hope of improvement for the export driven Japanese as any currency advantage is offset by the lackluster global demand for goods. In short, if  USD/JPY continues to trade on the current theme of Japanese economic weakness, rather than on any risk aversion flows, the latest economic news suggests that the pair could resume its upward path after a correction.  With the pair trading so close to the 100 level, the temptation to run stops at that barrier will become immense should the upward climb resume next week and the pair could reach 100 on sheer momentum alone.   

Meanwhile the EUR/USD was consigned to the sidelines for most of the night dropping below 1.2700   mainly due to EUR/JPY flows. The pair continues to chop in an increasing narrowing 1.2600-1.2800 range as traders seek to visibility on either side of the Atlantic. With economic data almost universally bad in US and Europe and joblessness climbing alarmingly in both economies, the trade in the pair remains a question of who the market hates less, rather than who it loves more.  The technical picture suggests that such narrow range conditions will not last much longer, but given the equally unappetizing choices in front of the market it is difficult to forecast with any conviction which way the pair may break.

In North American session today the release of US GDP figures for Q4 and the Chicago PMI data will dominate the docket. The GDP figures which are already expected to contract at an astounding –5.2% rate but could provide  a small lift  to the greenback if they surprise to the upside due to the shrinking Trade deficit figures. Nevertheless the overall pictures remains unremittingly dour and if Chicago PMI numbers show no improvement any dollar bounce is likely be  small.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
CAD	13:30	8:30	CAD Current Account	-6.0B	5.6B
CAD	13:30	8:30	CAD RMPI	0.4%	-15.4%
CAD	13:30	8:30	CAD IPPI	-0.3%	-1.9%
USD	13:30	8:30	USD Prelim GDP	-5.3%	-3.8%
USD	14:45	9:45	USD Chicago PMI	34.0	33.3
USD	14:55	9:55	USD Revised UoM Consumer Sentiment	56.0	56.2

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.