[LFX]

After bottoming near the London the Australian dollar and New Zealand dollar have had their recovery towards 0.7200 stalled by strong selling interest from European. Initially overnight AUD took out stops below the 0.7200 level and traded down to a low of 0.7153 before support kicked in. It was a similar story for the NZD, which has generally matched the AUD's weakness leaving the AUD/NZD cross broadly unchanged around the 1.2400 figure level.

NZD/USD currently trades just above the 0.5750 level. Both currencies are down over 1.25% against the yen today as Yen crosses are being sold on rising risk aversion. There hasn't been a major catalyst for this move but risk aversion definitely appears to be returning to markets.

Equity markets around the Asian region were weaker, albeit fairly modestly and US equity futures are also lower in the early morning trading session. Last night's weak US data weighed on sentiment and there is still uncertainty surrounding the earnings outlook. Both JPMorgan and Citigroup are due to report later this week. The focus today will be on the heavy US data schedule with CPI headline likely to fall given the energy results in the PPI yesterday, but core should remain constant. If we see further disappointment risk appetite will fall further.

Elsewhere with the exception of JPY, the USD has generally been firmer through Asia's session, although the moves have been modest. EUR/USD currently trades around 1.3175 after beginning London near 1.3245, while USD/JPY has offers around 99.40 and should not go too far higher.

Look to sell Aussie on rallies toward 0.7210/15, and buy near 0.7140. The options market appears to be suggesting that Euro should move toward 1.3100 before we get buying interest.

Something to put in the back of your mind is the Bank of Canada meeting next Tuesday. We believe that in part the Canadian dollar has strengthened because of the view that the Bank of Canada will move away from the rate easing/quantitative easing slant that they suggested several weeks ago. CAD yields have been rising on this expectation, and this suggests that the surprise trade could be associated with any form of comment about QE or rate cuts. This would quickly see $CAD moving back toward 1.2800.