Forex - UsdJpy dropped to its lowest level since June 2005 in carry-trade unwinding

Forex News and Events: The Yen rose to its highest level against the Dollar since June 2005 as investors exited riskier assets after soft US retail sales data added to fears the economy could be headed for recession. Weak outlooks about growth prompted some investors to reduce risky positions and unwind carry trades (borrow in a low-yielding currency, Yen or Chf, to buy relatively high-yielding currencies). Analysts said concerns that slowing spending by US consumers would spread the slowdown abroad also weighed on other currencies. UsdJpy was down 1.41% to 106.77, after dropping as low as 106.59. AudUsd dropped 1.64% to 0.8836, well off the day's high of 0.9019. The Euro fell to a four-month low against the Yen of 157.69 before recovering some ground to trade at 158.03, down 1.85%. Heavy selling against the Yen pushed the Euro down against the Dollar to 1.4802 -0.45%, off the day's high of 1.4922. UsdChf slipped 0.16% to 1.0913 after touching 1.0855 low. A crisis in the US financial sector has been weighing on the rest of the economy and the Dollar. It also boosted currencies such as the Swiss franc and the Yen that were previously sold rather indiscriminately because of their low yields. Citigroup, the largest US bank by assets, reported its first quarterly loss since its creation in 1998. Citigroup was the first big bank this week to report Q4 earnings, and the spotlight will now shift to others, including JP Morgan on Wednesday. Investors are looking to see how much the credit crisis is damaging banks' bottom lines and increasing the risk of a recession. To keep the economy from contracting, financial markets expect the Federal Reserve to cut benchmark overnight interest rates by at least a 50bp when its monetary policy committee next meets on Jan. 29-30. Lower rates reduce the attractiveness of Dollar-denominated securities and demand for the greenback.

Today's Key Issues (time in GMT): 09:30 GBP December Jobless claims -5k vs -11.1k 09:30 GBP November ILO Unemployment Rate 5.3% vs 5.3% 10:00 EUR December Euro-zone CPI 0.4% vs 0.5% (MoM) 10:00 EUR December Euro-zone CPI 3.1% vs 3.1% (YoY) 10:00 EUR December Euro-zone CPI Core 1.9% vs 1.9% (YoY) 12:00 USD January 11th, MBA Mortage Applications 13:30 USD December Consumer Price Index 0.2% vs 0.8% (MoM) 13:30 USD December Consumer Price Index 4.1% vs 4.3% (YoY) 13:30 USD December CPI core 0.2% vs 0.3% (MoM) 13:30 USD December CPI core 2.4% vs 2.3% (YoY) 13:30 USD December Consumer Price Index NSA 210.09 vs 210.17 14:00 USD November Net Long-term TIC Flows $65B vs $114B 14:00 USD November Total Net TIC Flows $60B vs $97.8B 14:15 USD December Industrial production -0.2% vs 0.3% 14:15 USD December Capacity Utilization 81.2% vs 81.5% 18:00 USD January NAHB housing Market Index 19 vs 19 22:45 NZD Q4 Consumer Price index 1% vs 0.5% 22:45 NZD Q4 Consumer Price index year 3% vs 1.8%

The Risk Today: EurUsd In recent positive trend, it recently tested 1.4825 resistance (January range 1.4578-1.4825). Market traded as high as 1.4922, in sight of 1.4967 resistance November high. Further strength might open the door up to 1.5000 key level. Thursday 1.4640 low marks support. Below that, 1.4570 minor support holds the door before further drop to 1.4500 and 1.4280. Initial support holds 1.4783 Monday low. GbpUsd remains weak having tested 1.9590 support (38.2% retracement of 2 years 1.7049 – 2.1161 advance) and tested level below 1.9500 last Friday. Further downtrend pressure might open the door toward 1.9105 (50% retracement). Longs will only lock within a return over 2.0000 key level and 2.0100 resistance. Initial support holds 1.9483 Friday low. UsdJpy remains weak breaking through 107.25 low of November 26, 2007. In recent downtrend, pressure opened the way toward 107.50 key support. Initial support holds 105.97 today low. Strong resistance holds 110.10 last week double top ahead of 111.92 early January high. UsdChf Downtrend remains strong and is constantly testing last November 1.0888 key level. Further weakness will open the way down to 1.0759 trendline low. Initial resistance holds 1.1012 Monday high. Early January double top 1.1191 marks strong resistance.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.5000 K 2.0245 S 114.00 P 1.1500 P 1.4967 S 2.0100 M 110.10 S 1.1192 S 1.4922 M 1.9985 M 107.25 M 1.1012 M 1.4820 1.9615 106.15 1.0890 1.4640 M 1.9483 M 106.00 S 1.0888 K 1.4500 K 1.9400 M 105.97 M 1.0886 S 1.4280 S 1.9105 S 104.20 T 1.0759 T S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot