daily analysis, mid-and long-term outlook

Daily Pivots: (S1) 1.0837; (P) 1.0886; (R1) 1.0927;
USD/CHF recovers mildly after fall from 1.1120 was contained at 1.0846. Nevertheless, further decline is still in favor as long as 1.0990 minor resistance holds. Retest of 1.0836 low is still expected to be seen and break will confirm recent decline from 1.1596 has resumed for next short term target of 61.8% projection of 1.1596 to 1.0836 from 1.1120 at 1.0650 first. However, above 1.0990 will argues that consolidation from 1.0836 is still in progress. Further recovery could be seen to 1.1120 or above. But still, upside is expected to be limited by 1.1189 resistance and bring fall resumption.
In the bigger picture, whole down trend from 1.3283 (05 high) is still in force. The preferred interpretation is that fall from 1.3282 was initially contained at 1.1919 and turned into sideway triangle consolidation that completed at 1.2467, where the medium term down trend from 1.3283 resumed . Having said that, next medium term downside target will be 161.8% projection of 1.3283 to 1.1919 from 1.2467 at 1.0260. Also, such medium term decline is tentatively treated as resumption of the long term down trend from 1.8305 (00 high) which could extend further to parity.
On the upside, though, above 1.1189 resistance will firstly argue that fall from 1.1596 has completed. Secondly, it will suggest that consolidation from 1.0890 is still in progress and further rise could be seen to retest 1.1596 high before completion. But still, break of 1.1596 is needed to indicate such down trend from 1.3283 has completed. Otherwise, long term outlook will remain bearish

Daily Pivots: (S1) 208.61; (P) 210.25; (R1) 213.40;
GBP/JPY's rise from 204.49 extends further to as high as 213.65 so far. Break of 212.44 resistance indicates that a short term bottom is in place at 204.49, with bullish convergence condition in 4 hours MACD and RSI, after drawing support from double channel support. Further rise should now be seen to retest inner channel resistance (now at 219.11) first. On the downside, it will take a break of 207.05 to indicate rise from 204.49 has completed. Otherwise, short term outlook will remain bullish for the moment.
In the bigger picture, an important medium term top is formed at 251.09 after completion of a medium term head and should top pattern (ls: 241.47, h: 251.09, rs: 241.35), with the medium term trend line support taken out too. In other words, the whole up trend from 148.19 should have ended at 251.09 already and deeper medium term decline should be seen to psychological support at 200, which overlaps with next medium term fibo support of 50% retracement of 148.19 (006) to 251.09 (07 high) at 199.64.
However, break of the mentioned inner channel resistance will firstly indicate that fall from 241.35 has completed. Secondly, it will alert that whole decline from 251.09 has possibly completed with three waves down to 204.49 too. Medium term outlook will turn neutral first in such case and focus will be back on outer channel resistance (now at 233.76).

Daily Pivots: (S1) 106.33; (P) 106.75; (R1) 107.58;
USD/JPY's rebound from 104.96 extends further to as high as 107.75 today. Break of 107.37 resistance indicates that decline from 114.77 has made a short term bottom at 104.96 on bullish convergence condition in 4 hours MACD and RSI. Further rally should now be seen towards 110.10 resistance. On the downside,below 105.92 is needed to indicate that rebound from 104.96 has completed. Otherwise, short term outlook will remain bullish.
In the bigger picture, whole medium term down trend from 124.13 remains in force as long as medium term falling trend line resistance (now at 113.41) remains intact. Further decline is still expected, after finishing current correction from 104.96, towards key medium term support zone of 101.22/65 level. However, since the structure of the fall from 124.13 is not clearly impulsive yet, the fall from 124.13 might only be part of a wide range consolidation pattern only and 101.22/65 key support might hold. Much attention will be paid there on sign of reversal as USD/JPY approaches this key support zone.

Daily Pivots: (S1) 155.89; (P) 157.05; (R1) 159.25;
EUR/JPY's rally from 152.11 extends further to as high as 158.93 today. Break of 157.77 cluster resistance (38.2% retracement of 166.64 to 152.11 at 157.65) as well as the short term falling trend line indicates that fall from 166.64 has completed. Also, the correction pattern from 167.72 should have completed at 152.11 too. Further rally should now be seen to 61.8 retracement of 166.64 to 152.11 at 161.08 first. Break will encourage retest of 166.64 high.
In the bigger picture, EUR/JPY has turned into large scale sideway consolidation after reaching 168.93. Stronger rebound from the long term channel support (now at 153.68) suggests that long term up trend rom 88.97 (98 low) is still in force). Focus is now back to 168.93 high and sustained break of this resistance is needed to confirm that long term up trend has resumed. Otherwise, further choppy consolidation could still be seen.
On the downside, while some interim pull back could be seen in the rise from 152.11, break of 154.83 support is needed to indicate such rally has completed. Otherwise, short term outlook will remain bullish for a retest of the upper end of the range of 149.27 and 168.93 first

Overview:

Yesterday's inter-meeting cut by 75bp, see our `FOMC: Aggressive cut by 75bp to 3.5%´ note, signals that the FOMC is extremely worried about the current situation. To us, the event illustrates that the preferences of the FOMC imply an even stronger commitment to insure against adverse economic scenarios. On this background, we have revised our Fed call. The new forecast implies that the Fed funds target is reduced to 2% by the 25 June meeting.
Details:

The FOMC's decision yesterday to bring forward the 75bp cut, priced in for the following week, is a very clear signal that they it is very worried about the situation. Concerns about systemic risks in the financial system, and the implied negative feedback effects on the wider economy, must have been an important factor behind the decision. To us, yesterday's event is an important piece of evidence that the FOMC's risk management approach to conducting monetary policy is gaining further prominence among FOMC members. According to the FOMC statement only one member, William Poole, opposed the inter-meeting cut. The adverse economic scenario it wishes to insure against has become even more negative.
Outlook:

Looking forward to next week's meeting, it is clear that financial market developments until then will be important. We doubt that the FOMC will disappoint market expectations of a 50bp cut due to risks of renewed equity market sell-offs. At the following meetings, we think the FOMC is going to cut by 50bp at the 18 March meeting and by 25bp at each of the 30 April and 25 June meetings. In other words, the Federal funds target rate is going to end up at 2% by the 25 June meeting, according to our projections. As illustrated in the chart below, our Fed call is a notch softer than current market pricing. The general picture, though, is that we agree with the markets that the Fed is going to ease monetary policy significantly in the coming months.
We plan to publish a new interest rate forecast on 4 February, where policy rate projections for other central banks will also be reviewed.

YEN weakening as Euro moving on purely technical indicators
Bank of Japan (BOJ) Governor Toshihiko Fukui said today the central bank would keep the current accommodative monetary conditions to help the economy achieve stable growth. 'Looking ahead, the economy is likely to expand moderately under stable prices,' Fukui told a parliamentary committee.
Japan's core nationwide consumer price index (CPI) rises in the next few months will be around 0.8 percent or more from the previous year, but it is unclear if it will settle around that level, the Bank of Japan's chief economist said on Friday.
The following technical analysis gives us a detailed lookout on what is expected to happen to EUR/JPY.
The buying point is at 158.56; based on a clear uptrend.

1. Fibonacci 161.8% is the take profit at 159.77
2. Fibonacci 50% is the stop loss at 157.60

The selling point is at 157.40; based on a break of a strong support.

1. Previous support is the take profit at 155.11
2. Fibonacci 61.8% is the stop loss at 158.71

To strengthen our analysis; we use many other indicators, starting with MACD (Moving Averages convergence divergence); we notice the crossing of MACD line to 9 period EMA line and breaks the middle level which is the zero line. In order to find the power of the market, we use RSI (Relative Strength Index).With RSI; we can determine that the market is in a bullish direction.
The momentum oscillator is very important to understand the strength of the market and as we see on the graph it is in an uptrend. The Stochastic oscillator breaks 20% line and continues to go higher.
* The following analysis is for information only; Finotec is not responsible for any decisions or misinterpretations based on the given text.

Markets' focus is mainly on the Japanese yen today as yen crosses surge sharply higher following rally in European and US stock markets, on anticipation of US stimulus package which was announced in the US afternoon. Addition to carry trades, most major currencies has its own reason to be firmer today. Euro was boosted by hawkish comments from ECB officials that cooled market's speculation of rate cut from ECB in H1, as well as stronger than expected investors confidence. Sterling was lifted by Governor Sentance's comments that emphasized a more balanced central bank policy. Aussie, was boosted by stronger gold prices. Canadian dollar, on the other hand, was boosted by strength in oil prices.
Bush administration and US lawmakers announced agreement on an economic stimulus package that would distribute tax rebates to about 116 million families. The rebates, expected to go out in June, would cost about $100 billion. Economic data from US was mixed, existing home sales dropped more than expected by -2.2% in Dec, to 4.89m annualized rate versus expectation of 4.95m. Jobless claims, though, was a positive surprise, dropping mildly by 1k to 301k.
Some jitters in the world stock markets was caused earlier today after Societe Generale said unauthorized bets on stock-index futures by a rogue trader caused a 4.9 billion-euro trading loss. Fed is believed to be unaware of SG's losses prior to the surprised 75bps rate cut earlier this week.
German's Ifo Business Climate climbed to 103.4, against all expectations. While the current situation component slipped, the outlook component improved. The data suggests that the underlying fundamentals in the Eurozone is still robust in spit of deepened slowdown in US and UK. ECB Weber said today that speculation of an interest-rate cut is "wishful thinking." The economic outlook is "positive" and rates are still on the "accommodative side". ECB president Trichet also reiterated that the fight against inflation remains the most important task of the bank.
In the monetary policy report update released today, BoC hinted on further rate cut, saying that "further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to return inflation to target over the medium term”. The bank also lowered 2008 GDP growth forecast for Canada to 1.8% from 2.3%. Also, BoC now believes core inflation will not rise back to the 2% target until the end of 2009.
CPI inflation in Japan will be the main focus of the coming Asian session and is expected to be unchanged at 0.6% yoy in Dec. BoJ minutes will also be released.

Daily Pivots: (S1) 106.33; (P) 106.75; (R1) 107.58;
USD/JPY's rise from 104.96 extends further 107.89 before retreating mildly. Outlook remains unchanged for the moment. Break of 107.37 resistance indicates that decline from 114.77 has made a short term bottom at 104.96 on bullish convergence condition in 4 hours MACD and RSI. Further rally should now be seen towards 110.10 resistance. On the downside,below 105.92 is needed to indicate that rebound from 104.96 has completed. Otherwise, short term outlook will remain bullish.
In the bigger picture, whole medium term down trend from 124.13 remains in force as long as medium term falling trend line resistance (now at 113.41) remains intact. Further decline is still expected, after finishing current correction from 104.96, towards key medium term support zone of 101.22/65 level. However, since the structure of the fall from 124.13 is not clearly impulsive yet, the fall from 124.13 might only be part of a wide range consolidation pattern only and 101.22/65 key support might hold. Much attention will be paid there on sign of reversal as USD/JPY approaches this key support zone.

USD/CHF rebounds strongly after fall from 1.1120 was contained at 1.0846, above 1.0836 low. With 4 hours MACD crossed above signal line, an intraday bottom is in place. Outlook is turned neutral for the moment. On the upside, break of 1.0990 resistance will argue that consolidation from 1.0836 is still in progress. In such case, Further recovery could be seen to 1.1120 or above. But still, upside is expected to be limited by 1.1189 resistance and bring fall resumption. On the downside, below 1.0846 will indicate fall from 1.1120 has resumed for 1.0836 low first and then next short term target of 61.8% projection of 1.1596 to 1.0836 from 1.1120 at 1.0650.
In the bigger picture, whole down trend from 1.3283 (05 high) is still in force. The preferred interpretation is that fall from 1.3282 was initially contained at 1.1919 and turned into sideway triangle consolidation that completed at 1.2467, where the medium term down trend from 1.3283 resumed . Having said that, next medium term downside target will be 161.8% projection of 1.3283 to 1.1919 from 1.2467 at 1.0260. Also, such medium term decline is tentatively treated as resumption of the long term down trend from 1.8305 (00 high) which could extend further to parity.
On the upside, though, above 1.1189 resistance will firstly argue that fall from 1.1596 has completed. Secondly, it will suggest that consolidation from 1.0890 is still in progress and further rise could be seen to retest 1.1596 high before completion. But still, break of 1.1596 is needed to indicate such down trend from 1.3283 has completed. Otherwise, long term outlook will remain bearish

Daily Pivots: (S1) 1.9583; (P) 1.9680; (R1) 1.9860; More
GBP/USD retreat mildly after reaching as high as 1.9847. Nevertheless, outlook remains unchanged. Break of 1.9789 resistance indicate that a short term bottom is in place at 1.9337 with bullish convergence condition in 4 hours MACD and RSI. Further rise should be seen to short term falling channel resistance (now at 1.9902). Break will indicate that whole fall from 2.1161 has completed too and bring stronger rally to 2.0099 resistance first. On the downside, while some retreat could be seen after testing the channel resistance, below 1.9464 support is needed to indicate rise rom 1.9337 has completed. Otherwise, short term outlook remains bullish.
In the bigger picture, prior break of medium term rising channel and 2.0 psychological support at least indicate that rise from 1.8090 has already completed at 2.1161. With 55 weeks EMA taken out too, it's likely that the medium term up trend from 1.7047 has also completed. Deeper medium term decline is expected towards 61.8% retracement at 1.8619.
Though, break of the short term falling channel will indicate that whole decline from 2.1161 has completed. Stronger short term rally should then be seen, probably to retest prior medium term channel support turned resistance (now at 2.0250) before resuming the medium term fall from 2.1161.

Daily Pivots: (S1) 1.4637; (P) 1.4708; (R1) 1.4825;
EUR/USD continues to retreat after rally from 1.4365 extended to 1.4788. An intraday top is in place and further consolidation might be seen. But rise downside should be contained well above 1.4508 support and bring rally resumption. As discussed before, prior break of 1.4715 resistance confirmed that fall from 1.4921 has completed. Further rally is now expected to be seen to retest 1.4921 high with prospect of retesting 1.4966 record and 1.5 psychological resistance. On the downside, below 1.4508 is needed to indicate rebound from 1.4365 has completed. Otherwise, short term outlook remains bullish.
In the bigger picture, with 1.3581 resistance turned support remains intact, medium term up trend from 1.1639 is still in force. Regardless of internal structure, it is treated as resumption of long term up trend from 0.8223 (00 low) to 1.3668 (04 high) and has just failed 61.8% projection of 0.8223 to 1.3668 from 1.1639 at 1.5004 target which overlaps with 1.5 psychological resistance. Having said that, the current price actions from 1.4966 is treated as consolidation to this long term rally. Though, sustained trading above 1.5 key resistance is needed to confirm the medium term up trend has resumed and bring rally to next projection target of 100% projection at 1.7048. Otherwise, more choppy consolidation could be seen inside established range of 1.4309 and 1.4966.

Daily Pivots: (S1) 0.9945; (P) 1.0100; (R1) 1.0188;
USD/CAD's fall from 1.0378 extends further to as low as 1.0015 today before recovering mildly. At this point, intraday bias remains on the downside as long as 1.0135 minor resistance holds. Further decline could still be seen to retest parity. But downside should be contained by 0.9971 resistance turned support on oversold condition and bring rebound. Above 1.0135 will suggest that a short term bottom is possibly formed and bring rebound to 4 hours 55 EMA (now at 1.0196) first.
In the bigger picture, a medium term bottom is in place at 0.9056 after USD/CAD just missed double projection target of 161.8% projection of 1.4006 to 1.1716 from 1.2737 at 0.9032 and 161.8% projection of 1.2737 to 1.0930 from 1.1874 at 0.8950. Nevertheless, the current rise from 0.9056 is still treated as correction to the long term down trend for the moment. Strong resistance should be seen as USD/CAD approaches key medium term resistance of 1.0930, with 100% projection of 0.9056 to 1.0248 from 0.9756 at 1.0948, 38.2% retracement of 1.4006 to 0.9056 at 1.0947 and 50% retracement of 1.2737 to 0.9056 at 1.0897. Attention will be paid to reversal signal as USD/CAD approaches this resistance zone.
On the downside, however, break of 0.9971 will be the first signal that rise from 0.9056 has completed. Further fall should then be seen to 0.9756 support. Break will encourage deeper fall to retest 0.9056 low.

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 205.34; (P) 207.90; (R1) 211.20;
GBP/JPY was once again supported by double channel support and rebounded strongly from 204.49. As discussed before, downside momentum is seen diminishing in bullish divergence conditions in 4 hours MACD and RSI. But break of 212.44 resistance is still needed to indicate a short term bottom is formed. Otherwise, outlook is neutral at best. Below 207.05 will flip intraday bias back to the downside for 204.49 low. However, above 212.44 will indicate fall from 241.35 has made a short term bottom and will bring further rebound to test short term falling channel resistance (now at 219.55).
In the bigger picture, an important medium term top is formed at 251.09 after completion of a medium term head and should top pattern (ls: 241.47, h: 251.09, rs: 241.35), with the medium term trend line support taken out too. In other words, the whole up trend from 148.19 should have ended at 251.09 already. Last week's close below 100% projection of 251.09 to 219.32 from 241.35 at 209.58 confirms underlying downside momentum is still strong and will encourage deeper decline to psychological support at 200, which overlaps with next medium term fibo support of 50% retracement of 148.19 (006) to 251.09 (07 high) at 199.64. The current fall will probably extend further to test long term rising trend line (129.32 to 148.19, now at 173.79). This view will remain unchanged as long as 221.25 support turned resistance holds.

EUR/JPY Mid-Day Outlook

Daily Pivots: (S1) 153.56; (P) 155.35; (R1) 157.90;
EUR/JPY strengthens further today but after all upside is still limited below 157.77 cluster resistance (38.2% retracement of 166.64 to 152.11 at 157.65). Outlook remains basically unchanged. With 155.77 cluster resistance remains intact. Fall from 166.64 could still be in force. Below 154.83 minor support will flip intraday bias back to the downside for a retest of 152.11 low. However, break of 157.77 cluster resistance will be the first alert that fall from 166.64 has completed and will turn short term outlook neutral.
In the bigger picture, as discussed before, the corrective nature of the rise from 159.67 to 166.64 suggests that further downside should be seen, at least in near term. Also, note that, firstly, EUR/JPY is still struggling around long term channel support (now at 153.68). Secondly, firm break of 149.27 will also complete a medium term double top pattern (tops at 168.93 and 167.72). Decisive break of 149.72 support will indicate that whole long term up trend from 88.97 (98 low) has completed and bring much deeper medium term decline to 143.60 support first.
However, strong rebound above 149.27, followed by a break of 158.67 resistance will indicate firstly that fall from 166.64 has completed. Secondly, price actions from 168.92 is probably just forming a sideway consolidation pattern. In such case, the long term uptrend remains intact and retest of 168.93 should eventually be seen.

Mid-Day Report: More Downside in Dollar and Yen, Strength in Commodity Currencies

Dollar and yen extends weakness further today across the board. Commodity currencies are generally firm following higher stock markets in Europe and US, as well as oil and gold prices. Existing home sales in dropped more than expected by -2.2% in Dec, to 4.89m annualized rate versus expectation of 4.95m. Jobless claims, though, was a positive surprise, dropping mildly by 1k to 301k. So far, there is not clear sign of the end of this week's weakness in the greenback and Japanese yen yet. Market's attention will now turn to BoC monetary policy report and speeches of BoC Dodge, US Treasury Paulson, Form Fed chairman Greenspan and ECB Trichet.
Euro was lifted against dollar and yen by upside surprise in German Ifo and hawkish comments from ECB Weber. German's Ifo Business Climate climbed to 103.4, against all expectations. While the current situation component slipped, the outlook component improved. The data suggests that the underlying fundamentals in the Eurozone is still robust in spit of deepened slowdown in US and UK. ECB Weber said today that speculation of an interest-rate cut is "wishful thinking." The economic outlook is "positive" and rates are still on the "accommodative side".

Daily FX Forecast

EUR/USD

Resistance levels: 1.4780/1.4860/1.4920
Support levels: 1.4700/1.4650/1.4550
EUR/USD has risen towards 1.4780 high ( beyond our target at 1.4750 ) yesterday after disappointing Existing Home Sales numbers from USA as it was suggested Gfk Consumer Confidence numbers from Germany came out the same as the consensus earlier today . Beyond 1.4780 is needed to signal further upmove towards 1.4860 later today and 1.4920 in mid term. First immediate Resistance comes around 1.4750 On downside, as long as price holds below 1.4780 ease back towrads 1.4700 and 1.4650 Supports may be seen later today
Strategy-neutral.
GBP/USD

Resistance levels: 1.9850/1.9900/2.0020
Support levels: 1.9760/1.9700/1.9650
GBP/USD has risen to 1.9850 highs over the last trading sessions The break above 1.9790 previous important levels recovers price towardes 1.9850 and even 1.9900 later today Longer term target is at 2.0020 On downside, below 1.9700 Support eases price back to 1.9600 bottom in mid term First immediate Support remains near 1.9760
Strategy-neutral.
USD/JPY

Resistance levels: 107.90/108.50/109.00
Support levels: 107.30/106.70/106.00
USD/JPY has risen to 107.90 key Resistance and our target earlier today ast it was suggested in our previous reports No change in our view. The bias remains bearish for further downmove below 106.00 and even towards 104.20 in longeras long as price remains below 107.90 key level First immediate Support comes at 107.30 ahead of 106.70 stronger one On the upside, a break above 107.90 again signals for reversal in the bias and test of 108.50 later today and 110.10 in longer term
Strategy-neutral.
USD/CHF

Resistance levels: 1.1000/1.1060/1.1110
Support levels: 1.0900/1.0850/1.0830
USD/CHF has reversed above 1.0950 first important Resistance earlier today On downside, the break below 1.0950 unlocks territory for further downmove below 1.0890 and even 1.0830 bottom in longer term. First Support comes at 1.09000 On the upside, a break above 1.1000 Resistance again is needed for test towards 1.1100-10 area in longer term In short term, above 1.0950 squeezes price to 1.1000 over the next trading sessions
Strategy-neutral.
EUR/JPY

Resistance levels: 159.40/160.00/161.00
Support levels: 158.00/157.00/156.40/154.80
The Cross has risen further towards 159.40 key Resistance and our target over the last trading sessions as it was suggested . Beyond may recover price to 160.00 and 161.00 in mid term On downside, first Support comes around 158.00 ahead of 156.40 stronger one. Below turns price back towards 154.80 previous lows
Strategy-neutral

Forex Technical Update

Euro: After breaking the strong resistance around 1.4625 levels (200 Hrly EMA) in yesterdays session Euro surged to the levels of 1.4776 before ending at the levels of 1.4757 by close. The charts are in extremely overbought region. On the downside immediate support is seen at 1.4710 (21 Days EMA in Hourly chart).Still bullish since 61.8% retracement has been broken. (eur/usd – 1.4755).
Pound: Cable had a trend reversal yesterday which was also evident in other crosses ranging 280 pips move.It pushed to the levels of 1.9779 in the late US session yesterday. The 4-hrly charts are extremely overbought and flattened while the daily charts are moving towards the overbought region with little room still . Major trendline resistance is evident near 1.98 levels.Initiate shorts there with stops near 1.9870 and reverse. (gbp/usd - 1.9780).
Yen: Yen traded within 130 pips yesterday and stood weaker near 107.11 levels yesterday. The hrly and 4-Hrly charts are extremely overbought while the daily charts are moving close to the overbought region. Pullback to the levels of around 106.90 (38.2% Retracement & 21 Days EMA in Hourly chart) could be witnessed. Target 108.00 (usd/jpy - 107.53).
Rupee: Rupee gained 13 paise in yesterdays session and closed stonger at 39.46. The overall outlook remains bullish for INR with . Medium Term Target - 38.80 (Yesterday's closing 39.46).
Swiss Franc: Swissy dipped to the levels of 1.0845 levels in yesterdays session before finally closing at 1.0879. It traded in a range of 90 pips with the daily charts being in oversold condition. Currently the bias remains upside for the pair upto the levels of 1.0955 levels and above.(38.2% Retracement). (usd/chf-1.0914).
Gold: Gold traded in a wide range of $25 in yesterday's session and alomst touched its all time high of $914 before ending the session at a very strong level of $912.9. The 4-hrly and daily charts are in overbought region. Stay bullish medium term target $1000.(Gold-$912.1).

Dollar Yen Approaches 108 As Nikkei Skyrockets, But Danger Ahead in US

Talking Points

1. Japanese Yen: Propels to nearly 108 as Nikkei has biggest rise in months
2. Euro: Bid all the way to 4780 but consumer data disappoints
3. British Pound: Trades off the 198.00 level after bank calls for 125bp of easing in 2008
4. Canadian Dollar: CPI data on tap
5. US Dollar: No data today

Risk appetite returned with a vengeance in the currency market tonight as Nikkei skyrocketed by more than 500 points helping to propel USDJPY to within 10 points of the 108 level. Investors in Asia were encouraged by the rebound in equity prices in Europe and US over the past two days after the Fed's emergency inter-meeting rate cut of 75bp on Tuesday.
With little key data on the economic calendar this week currency markets have been trading in tandem with the equities. Carry trades fell when equities crashed and rose when stock rebounded tracing out rollercoaster price action all week long. The economic picture remains unclear as traders still debate whether US will enter a full blown recession or merely experience a temporary slowdown. Yesterday's weekly jobless claims were encouraging printing at 301k well below our threshold of 350K and indicate that at least for the moment the labor markets are not seeing any material deterioration in demand.
On the economic front the European data was mixed today with German consumer confidence printing better than forecast at 4.5 vs. 4.3 but nevertheless hitting a 2 year low while Italian Retail sales slipped into negative territory registering a contraction of -0.3% on a month over month basis. The negative effects of the global credit crunch are slowly seeping into the real economy in the Euro-zone and should turbulence persist, consumer demand may weaken significantly, undermining ECB's hawkish outlook. For the time being however, European monetary authorities continue to err on the side of inflation maintaining a restrictive policy.
With no US economic data on the docket currency markets will look to equities to set the tone once again and today's early gains in the carry trades and the high yielders could come under pressure if US stocks sell off. After two strong days of gains, equity traders may run into the case of buyer remorse, choosing to take their profits ahead of the weekend. Should stocks falter expect the EURUSD and GBPUSD to do the same as risk aversion/risk assumption remains the only game in town.

FX Thoughts for the Day

USD-CHF @ 1.0965/69...Sell a Rally

R: 1.0975 / 1.1042
S: 1.0930 / 1.0900
USD-CHF has had sharp rally during the day and the pair is coming near its intraday Resistance of 1.0975, the statistically projected Max High for the day. A rally above this may be seen later today, towards 1.1042, which comes on the on the trendline on the Daily Charts joining the highs of 1.1628 (25-Dec) and 1.1124 (22-Jan). The latter is likely to hold, and a big rally could be used to sell.
On the downside the Supports are at 1.0930 and then at 1.0900. We would like to sell the pair if a sharp rally is seen.
Limit Sell Order:

1. Sell USD 10K at 1.1020 (up from 1.1010), SL 1.1065 (up from 1.1060), TP Open

GBP-USD @ 1.9776/80...Resistance near 1.9850-60

R: 1.9850-60 / 1.9900 / 1.9943
S: 1.9740 / 1.9690
GBP-USD rallied up to a high of 1.9849 during the day and it has come off from there, as the trendline Resistance of 1.9850-60, which we had mentioned is holding. This comes on the Daily Charts joining the highs of 2.1163 (09-Nov) and 2.0826 (29-Nov). It would come in again later today and a move above that could result in a rally towards 1.9900. Above that the statistically projected Max High for the day is at 1.9943.
On the downside the Support is at 1.9740 and then at 1.9690. The pair is again likely to face sellers near 1.9850.
AUD-USD @ 0.8813/17.......Holding Long

R: 0.8860 / 0.8936-40
S: 0.8800 / 0.8755-50
AUD-USD has been maintaining its bullish momentum during the day so far and is likely to show further gains later on in the day. The immediate Resistance on the upside would come in at 0.8860. A rally above that could lead to a rally towards 0.8936, the statistically projected Max High for the day.
On the downside the immediate Support would come in at 0.8800 and then at 0.8755-50, on the trendline on the 4-Hourly joining the lows of 0.8511 (22-Jan) and 0.8611 (23-Jan). Below that the Support is at 0.8726, the statistically projected Max Low for the day. We are holding a long position currently.

Canadian Inflation Slows, Clearing the Way for BoC Rate Cut.

Canadian inflation unexpectedly slowed as yearly Core CPI for December printed at 1.5% down from 1.6% and -0.3% on a monthly basis, which were less than forescasts of 1.7% and -0.1% respectively.Headline CPI was also lower as expected printing at 2.4% and 0.1%. Looking deeper into the components, we see that clothing prices lead the way with a -2.8% drop followed by tobbacco at -0.2%.THis should clear the way for a Rate cut by the BoC,look for them to follow the Fed's agreesive move with a 50 bps point cut of their own.