Forex - USD & JPY recover losses as US Stocks fall to lowest levels since 1997

Forex News and Events: Monday saw no let up in volatility as market illiquidity continued.   EUR/USD reversed all the gains made in Asia and much of those made on Friday after option related selling ahead of 1.3000 barriers proved to be insurmountable. With Asian central banks and speculative accounts selling into a weak market, the Euro was on extremely thin ice. Pressure was also increased when Fitch placed a question mark over Austria’s fiscal position while Trichet remarked that the ‘Euro Zone financial system is under severe strain’ while Gonzalez-Paramo chimed in with ‘countries could face insolvency problems due to fiscal spending’.   The Pound had a strong day holding onto recent gains against the Dollar and making back a lot of ground against the Euro. This was thanks to a reported GBP/AUD buy order in the order of £500 million.   During the afternoon, risk aversion reared it’s head again after Canada reported eye wateringly bad retail sales figures (-5.4%, month on month) and perception of the US financial sector nose dived after reports that AIG are about to announce a loss of some $60 billion and are to seek another huge cash injection from the US authorities. The Dow Jones Index ended the day down 3.4%, it lowest level in some 11 years. Yet, despite the bad news, the Dollar has remained stubbornly bid and appears to have taken the place of the JPY as the currency of choice for safe haven flows following the dire state of the Japanese economy.   With worries over the global financial sectors rife and equities still falling, it appears that many speculators were still playing the rather old game of buying the JPY as a risk aversion ploy.   This soon backfired on them as USD/JPY this morning and JPY crosses headed higher. USD/JPY eventually tripped stops above 95.00 while EUR/JPY rose above 121.00. Yen fell to a 12-week low against the dollar before government reports this week that may show the world’s second-largest economy is deteriorating, reducing the allure of the currency. The days of buying the JPY in a flight to quality seem to be well and truly over. IT appears to be losing some of its safe-haven status.  Today’s main highlight should be Bernanke’s semi-annual testimony before the Senate. This begins at 15.00 GMT.

Today's Key Issues (time in GMT): 13:30 CAD Retail Sales (MoM) (DEC) -2.7% vs. -2.4% 13:30 CAD Retail Sales Less Autos (MoM) (DEC) -2.0% vs. -2.3% 15:30 USD Dallas Fed Maufacturing Activity (FEB) -50.0% vs. -50.5% 17:40 USD Fed’s Lockhart speaks on US Economy in Orlando, Florida 23:00 USD Fed’s Fisher speaks at Harvard University on Financial Crisis 23:50 JPY Bank of Japan Monetary Policy Meeting Minutes (JAN)

The Risk Today: EurUsd EUR/USD's rebound was limited at 1.2991 and retreated sharply. An intraday top is in place and some sideway trading could possibly be seen. But after all, with 1.2512 low intact, another rise is still expected. As discussed before, decline from 1.4719 should have completed with five waves down to 1.2512 and made a short term bottom there. GbpUsd An intraday top might be in place in GBP.USD at 1.4660 and some sideway trading could now be seen. But after all, further rise is expected as long as 1.4051 support holds. Above 1.4660 will bring rally resumption to 1.4984 resistance first and break will then target 1.5722 key medium term resistance. On the downside, break of 1.4051 is needed to indicate that rise from 1.3053 has completed or otherwise, another rise is still in favor. UsdJpy USD/JPY's rally is still in progress and reaches as high as 95.32 today so far. At this point, intraday bias remains on the upside as long as 94.11 minor support holds. Further rally could now be seen towards 38.2% retracement of 110.65 to 87.12 at 96.10. UsdChf USD/CHF's recovery from 1.1459 was limited at 1.1712 and retreats again in early European session today. As mentioned before, rise from 1.0366 should have completed a five wave structure, ended with a diagonal triangle and a short term top is formed at 1.1883.

Resistance and Support: EURUSD GBPUSD USDJPY USDCHF 1.2990 K 1.4810 S 96.60 K 1.1780 S 1.2825 M 1.4625 S 96.00 M 1.1710 M 1.2770 M 1.4555 M 95.70 M 1.1665 M 1.2747 1.4507 95.36 1.1595 1.2715 M 1.4480 M 94.45 M 1.1560 M 1.2680 M 1.4415 M 93.87 M 1.1520 P 1.2660 K 1.4320 S 92.79 M 1.1465 S S: Strong, M: Minor, T: Trendline, K: Keylevel, P: Pivot