Forex - President-elect Barack Obama to take power today and BOC to cut rates

Forex News and Events: With US markets closed for the Martin Luther King holiday, focus moved to European stocks and all the action was in the banking sector which continues to hemorrhage. With RBS announcement yesterday, the market awaits details of the UK government’s proposal to insure banks’ toxic assets, but with increasing fears of nationalisation, risk sentiment has not been spared. The sharp drop in European bank shares yesterday signaled that the banking crisis is far from over and has the potential to disrupt the euro zone, whose economies get significantly less support from their governments when compared to the US and UK. S&P downgraded Spain to AA+ raising fears of further downgrades in European sovereign ratings and the European Commission published updated forecasts for 2009 which included forecasts for a 1.9% contraction in the economy in 2009 and a feeble 0.4% growth in 2010 recognizing that the recovery in unlikely to be V shaped. JC Trichet spoke during European time saying that the outlook for the EZ economy is "substantially worse" than the ECB predicted a month ago. Oil finished down following the cease fire in Gaza and the signing of 10 year gas supply deal between Russia and Ukraine. Yesterday's Asian time zone rally in "risk" was abruptly reversed. GBP gave up all of its 150 point rally and then some eventually finishing down nearly 2% against the Dollar as the RBS news broke and EUR similarly reversed its Asian gains eventually finishing down more than 1% against the Dollar and JPY which staged almost equal performances. Other "risk" currencies also gave up their gains falling generally 0.5%-1.0% against Dollars and YEN. Having peaked in Asia yesterday at .6844, AUD fell back to below Friday's NY close. The BOC is forecasted to cut its lending rate by 50bp and money markets seem to be pricing between 60 and 70bp. CAD should weaken if they cut by 75bp or more, and strengthen on less than 50bp, or 50bp with indications of caution on further cuts. New US president Barack Obama takes power later today as the 44th US president, his inauguration speech will lay out an agenda for change in troubled time.

Today's Key Issues (time in GMT): 00:00 GBP Barack Obama to enter the White House 09:30 EUR UK Consumer Prices (Dec) 10:00 CAD Ger ZEW Survey (Jan) 14:00 Bank of Canada Policy Announcement 20:20 BoE Governor King speaks in Nottingham

The Risk Today: EurUsd below 1.3025, is finding support on former trend lines. A rebound above 1.3025 would argue for a return towards 1.3120. Further downside pressure is expected later on (below 1.2970, in direction of 1.2855). GbpUsd is challenging a break of 1.4275, finding support (1.4135 this morning). A closing price below 1.4275 would argue for further downside pressure. The currency pair is seen choppy, between 1.4135 and 1.4360. UsdJpy within a narrow range is finding support on 90.10. Below that level, a return towards 89.65 might be seen (the bullish break point is at 90.75). UsdChf is seen doing a pullback towards 1.1285 (former bullish break level), encountering strong resistance between 1.1390 and 1.1440 (ascending resistance line).

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.3292 P 1.4360 M 91.30 S 1.1545 S 1.3120 S 1.4275 S 90.85 P 1.1490 P 1.3025 M 1.4135 M 90.40 M 1.1440 S 1.2947 1.3968 90.26 1.1414 1.2910 S 1.3936 P 90.10 S 1.1390 S 1.2855 S 1.3872 M 89.90 S 1.1285 S 1.2800 M 1.3778 S 89.64 M 1.1115 M S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot