Forex

Yens problems mount

By AC Markets

Thin liquidity continues to be the dominating theme in FX markets and we wouldnt read too much into the current price action. The EURUSD traded in a 1.4306 to 1.4375 range, while the USDJPY slowly trended higher, moving back to 92.27 from 91.55. The heavy buying of commodity currencies against the JPY seen yesterday tapper off slightly today, but still was weighing on the Yen. The big news was Japanese Airlines ongoing bankruptcy concerns as shares continued to slide which weighing broadly on Asian equities. However, news that S&P rating agency stated that Japan's rating might be sliced if policy steps fail to stabilize debt and gradually lower levels of debt, failed to affect the markets. The S& P analyst was quoted in saying "fiscal policy needs to undergo major reforms, if the debt burden is to steady and then gradually diminish" and that "downward pressure" on the rating "could emerge if policy initiatives are seen as insufficient" to regulate the situation. While the comment seem to lack immediate punch, we still expect Japan's debt issues to come into play in 2010.  The USDJPY traded up to 92.26 but back off a full assault on 92.35 critical resistance but with US 2s & 10s getting comfortable at these higher levels a weaker yen should be expected. The AUDUSD opened the Asian session around 0.8930 after shedding earlier gains due to the dramatic USD in late NY. Yesterday's US economic data was supportive of USD, as Case-Shiller home price index continued to improve for the 5th consecutive month, as well as a better than expected US consumer confidence at 52.9 in December vs. 50.6 in November. On the event calendar, Europe will be extremely light with the Eurozone M3 and Swiss December KOF leading indicator the focus. While in the US session, the only data release will be Chicago Purchasing Manager index, which markets expect a slight pullback to 55.1 from 56.1 last month.

Today's Key Issues (time in GMT):

09:00 EUR M3, % y/y (3mma) Nov 0.3 exp
09:00 EUR private sector loans, % y/y Nov -1.0 prior
10:30 CHF KoF leading indicator Dec 1.72 exp 1.62 prior
14:45 USD Chicago Purchas ing Managers Index Dec 56.0 exp, 56.1 prior

The Risk Today:

EurUsd For another very light data calendar we are anticipating continued choppy trading in thin liquidity. Watch the 1.4306 - 1.4366 intraday range. Clear trading above 1.4350 will put the focus on1.4460 now acting as decent resistance. Any break above there would face a major hurdle rallying higher at 1.4685. First downside support is now the200dma barrier at 1.4215.

GbpUsd Yesterdays sharp pullback broke most near term support and now focused on critical 1.5708 support. 1.5944 5 dma then 1.6069 should provided decent resistance

UsdJpy USDJPY finally overcome 91.80 levels on heavy selling against USD and commodity currencies. The 4-week uptrend (that has been in play since 27th Nov where we bottomed at 84.81) coupled with major resistance at 92.30 is now creating a very clear ascending triangle pattern, and a break to the upside would look to target 97.00 levels. Initial support is located at 91.40.

UsdChf Strong rally in NY sent the pair thru 1.0354 5dma resistance, with next levels above there at 1.0508 key high and beyond there the 1.0700 major resistance and 38.2% correction of the move from 1.1970 down to 0.9918. Near term support stands at 1.0320 ahead of 1.0219 low.