[iForex]

Overnight trends in the currency markets have been driven by risk aversion combined with lower than expected headline Australian CPI data and negative comments on Germany’s “green shoots” (or lack of them) from ECB’s Weber. The CAD, NZD and AUD are at the bottom of the performance pack this morning, with the JPY at the top. JPY sentiment is improving a little overall, – and not just because of risk aversion. While Japanese margin traders continue to like carry trades, the larger investors (life insurance companies) are indicating a clear preference for sticking close to home and concentrating portfolio investments in JGBs for the FY ahead. Trade data overnight continued to show Japan running an adjusted deficit but the rate of decline in exports appears to be slowing and the unadjusted data stayed in the black. USD/JPY likely hit an important medium term peak just under 102 earlier this month and while near term trends are liable to be dictated by risk sentiment, there is a window for the JPY to improve on a number of fronts. With the UK government poised to unveil its latest budget (and likely loading up on debt), the recent trend higher in GBP/JPY may be at risk, for example.

Earlier selling of EUR/USD on the Weber comments failed to make much impression below the 1.29 level and the short term risk is that a build weak, short EUR hands start to get squeezed by a move back up through the upper 1.29s. Specifically, the short term (1-hour) chart suggests that a minor double bottom may be in for the EUR, with the market trying to get a toehold above short term trend resistance at 1.2939 as we get underway. A move through 1.2994 targets a rise to the 1.3090/00 area. With little on the data front in the US, flows and risk sentiment are liable to remain the main market drivers.

[LFX]

Risk on, Risk off appears to be the theme for this week. The week began with the USD broadly stronger against most currencies as investors ran for safety behind the greenback. However, overnight, the appetite for risk increased and sentiment changed. The USD is weaker against key commodity/risk currencies like the AUD and the CAD. AUD is currently trading around .7122, encountering resistance at .7150. The CAD is currently around 1.2256, encountering resistance around 1.2415. The data out of Europe supports the theme of economic recovery. European PMI bounced 2% off of the trough in both manufacturing and services. This data leads us to believe that we've seen the trough in these metrics. The key focus for the US today will be jobless claims, any reduction of number will support the notion that we've seen the peak in unemployment. The earnings parade continues with most companies reporting better than expected prints.