FOREX INTRADAY SNAPSHOT

EUR/USD
Extends the strong recovery off 1.3752 to bring the 1.4000 level back into focus. This rally keeps the dominant uptrend intact, and a break through 1.3988 would re-open last week's high at 1.4036, threatening further gains towards the 1.4100 level. The 1.3860 area will look to contain weakness, to protect the 1.3752 low.

GBP/USD
Stages a corrective recovery off 1.5978 towards 1.6125. However, the 50% Fibonacci retracement level of the 1.6344/1.5978 setback at 1.6160 is likely to limit corrective strength. Friday's weakness confirmed a bull failure at the 1.6344 high, and a return to retest the 1.5978 low cannot be ruled out. Only a sustained break above 1.6160 would lift the tone.

USD/JPY
Drifts lower off 82.46 to put pressure on support at 82.04. Further weakness is expected to retrace the rally off the current session's 2011 low at 80.60, exposing 81.79 and the 81.53 area, which incorporates both a 1.618 Fibonacci extension target and the 50% Fibonacci retracement level. A push above 82.22 is required to lift the tone and open the 82.46 high.

AUD/USD
Friday's powerful bullish outside day gives the near-term a positive tone, and a retest of resistance at 1.0164 is expected. The Mar. 1 reaction high at 1.0203 is also vulnerable, and the threat is for further gains towards the key December 2010 reaction high at 1.0258. Corrective weakness will attract support while above 1.0015, and only below there would Friday's low at 0.9960 be exposed again.


FOREX FOCUS
Buying time was never a good idea for the euro and now it looks as if time has run out. For months, the single currency has found support, not only from hopes that the European Central Bank will remain hawkish on monetary policy but also from hopes that European Union leaders would come up with a longer-term solution to the sovereign-debt crisis. However, the longer the leaders have waited to negotiate a compromise between the 'peripheral' debtors and the core countries, the more difficult the whole process has become. Instead of the passing months bringing an economic upturn that would ease the financial stresses, the gap between the richer and the poorer countries has widened and political positions on both sides have more than just hardened. In the case of Ireland, the government has fallen and in Germany a new law could be passed by the Bundestag next week that will further limit Chancellor Angela Merkel's ability to negotiate. The gradual realization in the global investment community that the debt problems of the euro zone could still get worse can be tracked through the steady rise in the cost of insuring the debts of peripheral debtors as well as even some of the core countries. As EU leaders gather in Brussels for their latest round of talks on the issue, the rise in Portuguese bond yields close to their record highs suggest just how much disappointment in the political process has been built in to financial markets. So far, the euro itself has performed remarkably well, rising against the dollar for most of this year both on hopes that the politicians will pull some last-minute rabbit out of the hat and that the hawkish ECB will start raising interest rates, making the euro more attractive, as early as next month. This has helped push the single currency up to just under $1.40.


EUROPE
The yen stabilized in European trading Monday, after the Bank of Japan took unprecedented steps to boost market liquidity following Friday's earthquake and tsunami. Meanwhile, the euro remained well supported against the dollar after news over the weekend that euro-zone leaders agreed to expand their temporary bailout fund to EUR500 billion. Data-wise, euro-zone industrial production data are due for release at 1000 GMT. Markets are also set to keep a close eye on the meeting of euro-zone finance ministers and the ongoing situation in Japan and Libya.

ASIA
The yen stabilized Monday morning in Asia after a choppy start to the day, as the Bank of Japan took unprecedented steps to boost market liquidity following Friday's earthquake and tsunami. In announcements throughout the morning, the BOJ offered to inject a record 18 trillion yen into money markets -- Y15 trillion in same-day funds through three separate operations, plus three trillion yen in repurchase agreements. The yen had spiked sharply upward in early trading on expectations of repatriation flows, but soon erased those gains and traded in a tight band from around 0100 GMT. As of 0450 GMT, the U.S. dollar was trading around Y82.12, up from an earlier low of Y80.60, the greenback's lowest level against the yen since Nov. 9. While repatriations would tend to buoy the yen, the BOJ liquidity injections, combined with signals from Japanese officials that they could intervene in currency markets if necessary, kept the U.S. dollar supported for now. A strengthening yen could hurt Japan's export-dependent economy. Meanwhile, Chinese Premier Wen Jiabao, in closing remarks to China's annual legislative gathering, stressed that the yuan's appreciation must be gradual. Wen said the government needs to consider the impact on employment, business and overall social stability. That could point to a slower pace of appreciation, especially after China posted a trade surprise deficit of $7.3 billion in February. The dollar/yuan central parity rate was set Monday at $6.5701, vs 6.5750 on Friday. In Japan, Finance Minister Yoshihiko Noda said Monday morning that authorities will monitor yen levels for now. A senior Finance Ministry official warned Monday morning of the possibility of intervention to stem a strong yen rise. Authorities "will take decisive steps if necessary," he told reporters at the Finance Ministry. A separate government official told Dow Jones Newswires that he was concerned about speculative moves in the yen. Some investors seem to "want to push the yen higher at all costs," he said.


WORLD
Japan's yen surged against other major currencies Friday in New York after a devastating earthquake set off expectations that companies will repatriate yen to help pay for rebuilding efforts. Traders swiftly sold the yen just after the earthquake before reversing course. The dollar fell about 1.4% against the yen on the day, while the euro was down about 0.5% against the yen. "Speculation in advance of repatriation, that's what is driving the yen up right now," said Jeffrey Young, head of North American FX Research at Barclays Capital in New York. Traders are betting that insurers with exposure to Japan and companies based in the country will soon need to buy large quantities of yen to cover damages and pay out insurance claims. They would be forced to exchange foreign currencies for yen, further hurting the dollar, euro and other major units. But it is still too early to assess the extent of the damage and how much money may be needed to rebuild parts of the country that were destroyed by the earthquake and tsunami it triggered, leading to some uncertainty about longer term currency moves. "I'm personally not expecting a huge yen appreciation, but the net impact is probably negative for dollar/yen," said a portfolio manager at a London-based hedge fund. This source expects some Japanese firms to repatriate cash, but only gradually - and he doesn't expect a massive flow of yen back into Japan. The long-term effects on Japan's economy and the yen were still not known. But Moody's Investors Service said it was highly unlikely the country's debt rating would be affected by the earthquake. Japan is trying to emerge, like much of the world, from an economic downturn. Analysts said money spent to rebuild the parts of the country affected by the earthquake and tsunami could spur growth. However, it could add to the country's already high debt burden.

FOREX INTRADAY SNAPSHOT

EUR/USD
Further gains for the euro are expected towards the Feb. 2 reaction high at 1.3862. The wave equality target at 1.3824 has been keeping the underlying tone positive and the 1.3862 peak marks the highest point of a recently completed bull flag/wedge pattern on the daily chart. The positive wave structure of the strong recovery off Tuesday's 1.3525 low creates scope for the 1.4000 area in the coming sessions. Corrective downside risk is limited to Thursday's low at 1.3704.

GBP/USD
Thursday's failure to force a break through the key 1.6277/1.6298 resistance area will concern GBP bulls. Action since the Feb. 3 reaction high at 1.6277 can be confined within a bullish continuation pattern, although this means there would be scope for a return to the Feb. 11 reaction low at 1.5964 on a break below 1.6075. Regaining ground above 1.6211 is required to bring the focus back onto the 1.6277/1.6298 resistance area.

USD/JPY
The corrective recovery off 81.62 is likely to be short-lived and limited to the 82.50 area. Resistance at 82.32 will look to protect 82.50 and prompt a return to the 81.62 low, which is close to crucial support at 81.50. The support line of an effective four-month bear pennant consolidation pattern lies at 81.50, which is protecting the Feb. 4 reaction low at 81.10.

AUD/USD
Extends the recovery off Wednesday's low at 0.9982 to bring the focus back onto the Feb. 18 high at 1.0160. A three-week bull pennant continuation pattern can be discerned on the daily chart and to provide a short-term boost, a break through 1.0160 would create scope for 1.0201 and the Dec. 31 reaction high at 1.0258. Good support lies in the 1.0060 area and only forays below there would concern bulls.


FOREX FOCUS
Watching the euro is like watching a rabbit caught in the glare of the headlights as stagflation comes rumbling down the road. The single currency just isn't sure which way to hop. On one side, the European Central Bank is well placed to respond to higher inflation. As analysts point out, the ECB can tighten monetary policy much more quickly than the Federal Reserve, which is mired in heavy doses of quantitative easing that will take months to unwind. On the other side of the road, however, is the problem of growth. Not only would higher rates increase the risk of a sovereign default but civil unrest, of the type seen in Greece this week, would become more widespread. Stagflation has started to loom large as the price of crude oil has rocketed on fears that the "Jasmine revolution" sweeping the Middle East and North Africa will disrupt production. Libyan output has already been impacted, helping to send the price of Brent crude to nearly $120 a barrel earlier Thursday. And the rally in crude prices isn't expected to stop here. Demonstrations in Bahrain and Saudi Arabia will only increase geopolitical tensions and raise fears of an even greater oil shock. A study by Goldman Sachs highlights the risk of disruption to Europe's gas supply from North Africa and the impact this would have on wholesale power prices, especially in Italy, Spain, Portugal and the U.K. As for most other major economies, this couldn't have come at a worse time for euro-zone and European Central Bank policy makers. Not only is growth in most parts of the region still very fragile, but Germany, the strongest of the core countries, would be most exposed to higher energy costs. Carsten Brzeski, senior euro-zone economist with ING Financial Markets in Brussels, summed up the problem for Germany: "The biggest threat for the German economy currently comes from oil prices. Energy- and food-driven inflation could choke off the consumption recovery before it actually gets going."

EUROPE
Sterling came under pressure across the board Friday after data showed that the U.K. economy had contracted more than previously thought in the fourth quarter, while the euro also sank despite a general improvement in global risk appetite and retreating oil prices. Data showed that the U.K. economy shrank by 0.6% in the last quarter of 2010, compared with an initially estimated quarterly drop of 0.5% in late January, pushing the pound lower against the dollar and scaling back expectations of three rate increases by the Bank of England this year. Rate analysts now predict only two BOE rate increases in 2011, with the third one pushed forward to February 2012. "Today's figures show that the performance of the economy was even worse than we initially feared," said Hetal Mehta, a U.K. economist at Daiwa Securities in London, adding that expectations for a rate rise in May will be influenced by first-quarter 2011 GDP figures. "Only if the economy expands by around 0.6%-0.7%, to take GDP back to third-quarter levels, do we think that the MPC [BOE Monetary Policy Committee] would consider a May rate hike. In our view, this is an unlikely scenario," Mehta added. The euro was well bid early in the session against the safe-haven Swiss franc, as global risk sentiment improved from Thursday and oil prices eased back from over two-year highs. "The franc would suffer acutely were the markets to suddenly become more relaxed, or to become increasingly inured to the news flow regarding Libya and the like," said Daragh Maher, a currency strategist at Credit Agricole in a note to clients. The franc managed to claw back most of the day's losses, however, after a strong Swiss February KOF survey index rose to 2.18, above expectations of 2.08, giving the currency a lift. Oil prices remained in focus during the session after easing off the two-and-a-half year highs reached Thursday at $119.79 a barrel. This benefited the Australian dollar and its Canadian counterpart as well. The dollar was cautiously higher across the board, but struggled to sustain gains against the Japanese yen. The softer greenback tone wasn't helped Thursday, when the St. Louis Federal Reserve President James Bullard said that a third round of bond buying wasn't "totally off the table."

ASIA
The euro rose to its highest level against the dollar in more than three weeks in Asia Friday, as investors bet the European Central Bank may sound a more hawkish tone at a meeting next week amid mounting inflation expectations. Dealers said investors will be watching Germany's provisional consumer price index data for February due later in the day, as well as other European economic indicators. Strong results would likely buoy the euro further by increasing expectations for the ECB to move toward an exit from its easy monetary policy in the nearer term, they said. The common currency is also benefiting from the perception it has less to lose than the dollar from the turmoil in the Middle East and North Africa, dealers said. The U.S. is perceived as the major outside backer of governments in the oil-rich region that are being challenged by rapidly spreading popular protests. Washington has been put on the defensive, dealers say. Speculation that future governments in countries like Egypt could be less accommodative to U.S. interests highlights the risk of waning American power, a negative development for the greenback, they say. "Dollar assets are looking riskier due to the turbulence in the Mideast and North Africa," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corporation. "The developments there add to the view that U.S. power is waning." Continued speculation that any intensification of anti-government protests in Saudi Arabia and other oil-rich Middle Eastern nations could send oil prices higher is also hurting the dollar while benefiting the euro, dealers said. While the higher oil prices threaten to cool the U.S. economy, "the effect in the euro-zone is more noticeably to raise inflation expectations, which makes it seem all the more certain that the ECB will raise interest rates before the Federal Reserve," said Hideki Amikura, a deputy general manager in the foreign exchange section of Nomura Trust and Banking.

WORLD
The dollar fell broadly Thursday in New York as traders opted for the safety of the Swiss franc and Japan's yen amid ongoing turmoil in the Middle East and North Africa. Meanwhile, expectations for widening interest-rate differentials pushed the euro to a three-week high against the dollar. The dollar sank to a record low against the franc of CHF0.9234 as violence increased in Libya and fears increased that unrest in the Middle East could spread to more oil-producing nations like Iran and Saudi Arabia. "We continue to focus on the issues in the Middle East," said Aroop Chatterjee, chief foreign exchange quantitative strategist at Barclays Capital in New York. "Even though we've seen a bit of stabilization in oil prices, in the currencies market, [investors] still favor safe havens." The franc has become the most popular safe-haven option during times of geopolitical risk. It also rallied against the euro Thursday. The yen also was bid higher against the dollar and euro thanks to its perceived safety. Oil prices climbed above $100 a barrel early in the global day on the New York Mercantile Exchange, leading to the dollar's record weakness against the franc. But even as oil prices have backed off that lofty level, currency investors continued to favor safety. The situation in the Middle East appears to be far from stabilizing, so the flight to safety is likely to continue, analysts said. "If Iran or Saudi Arabia become unglued, it could get much worse," said John McCarthy, managing director of foreign exchange for ING Capital Markets in New York. There have been protests in recent days in both Saudi Arabia and Iran, but nothing approaching the levels seen in recent days in Libya. A bigger disruption in oil supply could severely hinder global economic growth. Libya accounts for about 2% of the world's oil production, while Iran accounts for about 5% and Saudi Arabia nearly 12%

FOREX INTRADAY SNAPSHOT

EUR/USD
Stages a recovery off 1.3508 in an attempt to regain a foothold above 1.3600. The top of the weekly Ichimoku cloud halted the dominant setback off the Feb. 2 reaction high at 1.3862, but layers of resistance between 1.3685 and 1.3725 provide a significant hurdle for corrective gains. A break below 1.3573 is required to bring the 1.3508 low back into the picture.

GBP/USD
Monday's high at 1.6185 is expected to face a retest, as last Friday's bear failure low at 1.6037 continues to control near-term sentiment. A break through 1.6185 would re-open lat week's 1.6277 reaction high and the key November reaction high at 1.6298 is still vulnerable. Only a reversal below 1.6037 would put bears in control of the near-term, exposing 1.5990 initially, but creating room for 1.5940 and a sharper setback to 1.5826.

USD/JPY
Consolidates last Friday's strong recovery off 81.10 within a rectangle between 82.16 and 82.48. More ranging is expected, but with solid backup support lying at 81.85, the main threat is to the upside. A push through 82.48 would create room for projected resistance at 82.85, which protects the Jan. 27 high at 83.22.

AUD/USD
Recovers well to re-open last Friday's spinning top high at 1.0201. Monday's recovery off 1.0098 left a neutralizing doji on the daily chart and a break through 1.0201 is the main threat, opening the December 2010 28-year high at 1.0258. Only a break below 1.0116 would negate the positive outlook, exposing 1.0098 and 1.0055.


FOREX FOCUS
Fear is still stalking the currency markets. Egyptian rioters may have calmed down and Europe's leaders may be edging closer to resolving the euro zone's sovereign-debt crisis. But it is the risk of global inflation that now appears to be the problem. This seems to be the message coming from the currency market's muted response to Friday's sharp rise in U.S. Treasury yields. The rise, which took the 10-year yield to a 10-month high at 3.68%, came in the wake of a sharp fall in the U.S. unemployment rate to 9.0% from 9.4%. Under normal circumstances, the yield rally should have given the dollar a sharp boost, not only against the euro, but also against the yen, the value of which against the dollar is often driven by yield differentials. However, very little has happened. The dollar has risen but gains have been limited and there is little sign of any serious upward momentum developing. Some market experts suggest that the rise in yields will only have an impact on sentiment once the focus of the currency markets moves away from local events, such as those in Egypt. Others reckon that the dollar hasn't benefited more as there is little evidence that the higher yields will translate into higher interest rates from the Fed. For example, Jane Foley, senior currency strategist at Rabobank in London, reckons that the timetable for rate hikes is hardly changed, with the European Central Bank expected to move in October or November but the Fed still seen waiting until 2012. But it could well be that inflation fears are merely replacing the sovereign-debt crisis and the Middle East contagion risks that have largely dictated market sentiment in recent weeks.

EUROPE
China throws a curve ball in London trading hours and raises its interest rates, hitting risk-sensitive commodity currencies hard. But the move fails to have more than a temporary effect on the euro's rally against the dollar, with the single currency jumping to the day's high against the dollar at $1.3670 after a dip immediately following the news. AUD was worst hit, dropping to $1.0139 from $1.0180 in the wake of the announcement and sinking to the day's low at $1.0140 soon afterwards. EUR/USD currently up at 1.3634, GBP/USD up at 1.6112 and USD/JPY down at 82.13.

ASIA
The euro gained against the dollar and yen in Asia Tuesday as stronger Japanese equities prompted investors to buy back the risk-sensitive currency, pushing it further off the two-week low against the greenback that it marked Monday in New York. Highlighting investors' greater willingness to bet on risk-sensitive currencies, several Asian units rose to multi-year highs against the dollar Tuesday. The euro's rise was also helped as stop-loss buying orders were triggered above $1.3600, dealers said. But the euro's gains could be blunted later in the global day if the U.S. Treasury Department's offering of $32 billion of three-year notes goes poorly, pushing U.S. yields up further, dealers said. "If the auction outcome supports the rising trend in bond yields," that could weigh on the euro, said Yuichiro Harada, senior vice president of forex division at Mizuho Corporate Bank. Recent strength in U.S. economic data has also added to speculation "that U.S. Treasury yields will likely gain on the back of the economic recovery," which could make investors more hesitant to buy the common currency, he said. At the same time, the euro's downside against the dollar may remain limited if the currency holds above the $1.3500 mark for the rest of the global day, said Sumino Kamei, senior analyst at Bank of Tokyo-Mitsubishi UFJ. The euro was at $1.3614 as of 0450 GMT from $1.3583 late Monday in New York, and at Y112.04 from Y111.82.

WORLD
The euro rebounded from a two-week low Monday in New York, as short-term buying momentarily overcame concerns about weak German economic data and a lack of new details about the euro zone's plans to address its debt woes. European Union leaders met late last week to discuss a broad range of economic reforms, and map out a strategy to address the 17-nation currency bloc's sovereign-debt problems. But the summit dissolved into acrimony, disappointing traders who had hoped EU leaders would clarify details over plans to support the euro zone's most troubled economies. After weeks of rallying on the back of expectations of higher euro-zone interest rates, the single currency fell sharply, as the European Central Bank appeared to downplay the prospect for higher borrowing costs. Disappointment with European policymakers combined with surprisingly weak German manufacturing data for December, raising some concerns about the sustainability of a recovery in the euro zone's largest economy. At least temporarily, concerns about the euro zone's most economically distressed countries have largely retreated to the background. "The euro has been downgraded from a crisis to a problem," said Ron Leven, currency strategist at Morgan Stanley. Because the market appears to be pricing in the prospect of some resolution, "the risk of a liquidity event [appears] much smaller," he added. Late Monday, the euro was at $1.3583 from $1.3582 late Friday, according to EBS via CQG. The dollar was at Y82.32 from Y82.20, while the euro was at Y111.82 from Y111.67. The U.K. pound was at $1.6108 from about $1.6104. The dollar was at CHF0.9555 from CHF0.9551.

FOREX INTRADAY SNAPSHOT

EUR/USD
The corrective recovery off 1.3543 is likely to stall and renewed bear pressure is expected on Friday's 1.3543 low. Last week's gravestone doji candle is behind the latest downside threat and support from the top of the weekly Ichimoku cloud at 1.3510 is likely to be called into action. The 38.2% Fibonacci retracement level of the 1.2860/1.3862 rally lies just beneath, at 1.3479. Only a break above Friday's spike high at 1.3680 would put bulls in control of the near-term, opening 1.3700 and 1.3770.

GBP/USD
The recovery off Friday's low at 1.6037 is set to extend toward 1.6172. The 1.6037 low has already become a potential bear failure low and a break through 1.6172 would provide confirmation, creating room for a recovery back toward last week's 1.6277 reaction high. Only a reversal below 1.6037 would put bears in control of the near-term, exposing 1.5990.

USD/JPY
Friday's strong recovery off 81.10 keeps the three-month bear pennant intact and consolidation is underway off 82.47. More downside consolidation is expected toward the 81.85 area, which would be exposed on a break below 82.16. A recovery above 82.28 re-open the 82.47 high, but only a break through 82.47 would suggest this recovery is sustainable.

AUD/USD
Suffers a corrective setback off Friday's spinning top high at 1.0201, which has scope for the 1.0050 area. A break below 1.0098 would bring the 1.0050 support area into focus, but the positive weekly candle suggests downside risk is limited. A push through resistance at 1.0163 would be required to re-open the 1.0201 high and threaten a return to the December 2010 28-year high at 1.0258.


FOREX FOCUS
Kate Barker is right. The Bank of England's credibility is very much at stake, especially if U.K. inflation does not fall back as Governor Mervyn King has promised. The central bank risks unleashing a price surge that could seriously damage the recovery down the line. However, as Barker admitted in her speech Thursday, the central bank's dilemma is worse now than it was when she left the monetary policy committee last May. The Bank of England is not alone. This week we have also seen the European Central Bank turning more dovish than expected and the Federal Reserve turning a tad more hawkish than anticipated. Each bank faces its own particular policy challenges, but for all three one issue is key: managing their currencies. Sure, the dollar, the euro and the pound are all free-floaters but that doesn't mean that the economies of the U.S., the euro zone and the U.K. are any less sensitive to currency moves and their central banks any less partial to a bit of subtle currency management. Over the last year or two, the U.S. has come under repeated attack, especially from China, for allowing the dollar to remain weak, undermined by the Fed's extensive program of quantitative easing. Now, as signs emerge that the U.S. recovery is becoming more entrenched and the jobs market is showing signs of improvement, Fed Chairman Ben Bernanke has been able to feed the market a little more optimism. Hopes have risen that more QE may not be needed and the dollar has shown more resilience.

EUROPE
The dollar recovered some ground in European trading hours Monday while sentiment towards the euro soured rapidly after weak German manufacturing orders data. The euro hit a fresh two-week low against the dollar and was under pressure against the pound after German manufacturing orders fell 3.4% in December, a worse-than-expected drop, driven by a shortage of large orders and low demand for new vehicles, the economics ministry said Monday. Moreover, the fact that European Union leaders failed to make any progress in talks Friday over a German-led plan to boost the competitiveness of weaker euro-zone economies, may also be weighing on sentiment towards the 17-country currency, market participants said. "The EU summit failed to deliver any real progress, in fact it was actually quite negative," said Ian Stannard, a currency strategist at BNP Paribas in London. "The differences of opinion were very much exposed by the summit," he added. A large majority of European Union leaders rebuffed a Franco-German plan for reforming the euro-zone economy outlined at Friday's summit. "The fact that the European Union competitiveness pact seems to be failing to gain any interest elsewhere is going to hold up negotiations on the European Financial Stability Facility," said BNP's Stannard. To a large extent, market participants were expecting an agreement to increase the EFSF's lending capacity at the end of March. Looking to the session ahead Monday, with no major data due for release, European Central Bank President Jean-Claude Trichet's appearance before the European Parliament Committee at 1400 GMT will be closely watched.

ASIA
The euro rose against the yen and the dollar in Asia Monday as generally stronger regional equities encouraged buying of the risk-sensitive common currency, which also benefited from bargain hunting following falls in New York on Friday. For the rest of the global day, traders will be watching European Central Bank President Jean-Claude Trichet's appearance before the European Parliament Committee at 1400 GMT. Trichet last week cut into the euro's recent rises by expressing support for interest rates to stay at current levels. Any further dovish comments could damp the common currency's modest rise so far Monday, dealers said. Other downside risks also lurk for the euro in industrial production data from the euro-zone powerhouse economies this week, dealers and analysts said. Germany releases its industrial production index for December on Tuesday, followed by France on Thursday. "We believe the market will react more severely" to any downside surprises in the euro-zone industrial output data, said Sara Yates, a currency strategist with Barclays Capital. Investors have become more cautious following the sell-off in the common currency late last week, and that is "likely to inhibit the market's eagerness" to get more solidly behind the euro this week, even if the data are strong, she said. At 0450 GMT, the euro was up at Y111.95 from Y111.67 late Friday in New York. Against the dollar, the common currency traded up at $1.3616 from $1.3582. Higher share prices in Japan, where the benchmark Nikkei Stock Average traded up 0.64% in afternoon trade, cued short-term investors to buy the risk-sensitive currency, dealers said.

WORLD
The dollar advanced broadly Friday in New York, as initial disappointment with a seemingly weak U.S. employment report gave way to guarded optimism that sluggish labor markets could be poised to rebound. The Labor Department reported that the U.S. economy added a paltry 36,000 jobs, far less than the consensus estimates of 136,000. However, economists were surprised by the unemployment rate, which posted an unexpected drop to 9.0% from 9.4%. After expecting a more-robust jobs number, traders initially jettisoned the dollar in disappointment. They soon bought it back after analysts attributed much of the jobs weakness was to the heavy snowfall that blanketed much of U.S. last month. That kept potential employees in hibernation. "Over the last year, we've added a million jobs, and it takes a long time to eat into the 8 million jobs lost during the recession," said Brian Levitt, economist with OppenheimerFunds Inc. "It's a slightly disappointing report, but it can be explained away due to a very harsh January weather-wise." Friday's jobs data are unlikely to prompt the Federal Reserve to curb its ultra-loose monetary policy, which would help buttress the dollar. However, expectations about a potential interest-rate increase from the bloc of euro-zone nations were decisively squelched by the European Central Bank this week, which deprived the euro of much of its support.

FOREX INTRADAY SNAPSHOT

EUR/USD
The powerful uptrend sets fresh two-month highs, and the next port of call above Wednesday's current session high at 1.3862 is the 1.3950 area. The 76.4% Fibonacci retracement level of the 1.4283/1.2860 bear wave lies at 1.3947, and a measured target based on the recent 190-pip consolidation range highlights 1.3950. Backup resistance lies at 1.4000. Downside risk looks limited to the 1.3750 area, but a lot of work would be required to wrest control from USD bears.

GBP/USD
The bull wave off last week's 1.5752 low is extending strongly into fresh twelve-week highs, and is closing in on the 1.6211 target. The 1.6211 level represents a 1.618 Fibonacci extension target, but the key November reaction high at 1.6298 is now looking vulnerable. Corrective weakness will attract support while above 1.6000, which is protected by 1.6075.

USD/JPY
The support line of a three-month bear pennant is being challenged at 81.31, as the robust downtrend continues to dominate. The sharpness of the decline off the Jan. 27 83.22 high creates room for a break below 81.31 this week, exposing the 2011 low at 80.93 and the bear pennant low at 80.21 from last November. Corrective gains are limited to the 81.92 area, and only above there would provide a near-term boost.

AUD/USD
Corrects off Tuesday's high at 1.0150, with downside risk limited to the 1.0045 area. This week's strong recovery off 0.9866 is likely to keep 1.0045 protected, and prompt a fresh wave of bull pressure to the 1.0150 high. Tuesday's strength also negated a three-week bear pennant, and a return to the Dec. 28-year high at 1.0258 is expected in the coming sessions. Only a break below 1.0045 would question the positive tone, exposing 0.9975.


FOREX FOCUS
Interest rates are once again the only game in town. The political turmoil in Egypt may have shaken the currency kaleidoscope for a short while, and if the political tensions spread to other countries in the Middle East, risk will once again become a currency issue. But risk is not an issue right now. If anything, the impact interest-rate speculation is having on currencies has probably intensified over the past few days. With the European benchmark for crude oil prices rising to over $100 a barrel for the first time in two years and other commodity prices remaining strong, there has been more talk of the need to combat the rise in inflation. At the moment, the euro, the pound and the commodity currencies are among the biggest winners. There is nothing new about the hawkish stance of the European Central Bank. But, for the first time, financial markets might be taking this hawkishness seriously. Up until now, the assumption was that there was little the ECB could do while the funding costs of the euro zone's peripheral debtors was still rising and the risk of a sovereign default remained high. However, recent progress in negotiations within the European Union for a credit rescue package has changed all that. The falling cost of credit default swaps for "peripherals" has helped to raise expectations that the ECB can probably respond to higher inflation pressures with tighter monetary policy if it wants to. Optimism that the European Union is closer to a permanent solution to the sovereign debt crisis is also providing help for the pound, as this helps to remove the threat of default for the U.K.'s highly exposed banks. Again, this will make it easier for the Bank of England to respond to the higher inflation pressures posed by commodity prices, with the National Institute of Economic and Social Research warning early Tuesday that the Bank will end up raising rates three times this year.

EUROPE
The euro has paused Wednesday from the steady gains that took it close to three-month highs against the dollar as the upcoming U.S. ADP jobs report added a note of caution to the day's proceedings, but support for the single currency remains strong. Earlier Wednesday, the euro reached it highest level against the dollar since Nov. 9, stopping short of $1.39 at $1.3862. But despite backing off day highs, its perch above $1.38 remains intact amid solid demand. The euro's gains have been attributed to a confluence of factors. A pickup in economic data from around the world has been followed by tensions easing in Egypt, where President Hosni Mubarak pledged to step down this year, which in turn saw investors move back into assets seen as carrying greater risks. With oil prices remaining elevated, markets are considering which central banks are most likely to make early moves on lifting interest rates, and the European Central bank is tipped to move before the Fed. But at this point, interest-rate expectations are looking over-stretched in the euro's favor, making the currency vulnerable to a reversal in fortunes, Credit Agricole said in a research note. The trigger for such a move may come from the ADP employment report, the bank said. "ADP might provide pressure release valve."

ASIA
The euro and British pound rose to fresh multi-month highs against the dollar in Asia Wednesday, as strong regional equities prodded investors to buy the risk-sensitive currencies. The gains were supported by speculation that rising inflation in the E.U. and the U.K. may lead to nearer-term rate hikes in those areas. Dealers said attention for the rest of the global day will be on the E.U.'s producer price index for December, due at 1000 GMT, and on U.S. jobs data for January from payroll giant Automatic Data Processing Inc. Strength in the E.U. figures could further buoy the euro, although even solid U.S. data may not help the dollar much dealers said, as the job market still has far to go, keeping any Federal Reserve tightening a ways off. Stronger Asian bourses Wednesday prompted short-term investors in Asia to buy risk-sensitive currencies such as the euro and pound against the safe-haven dollar, traders said. The gain in equities was led by Japan's benchmark Nikkei Stock Average, which was up 1.9% in late afternoon trade. Demand for higher-yielding, riskier assets pushed the common currency to a new high of almost three months at $1.3862, its highest mark since Nov. 9. At 0450 GMT, it was at $1.3860, up from $1.3829 late Tuesday in New York.

WORLD
The euro surged to a two-and-a-half month high against the dollar Tuesday in New York as investor appetite for riskier assets increased and expectations for an interest-rate hike in the euro zone grew. The euro climbed above $1.38 for the first time since Nov. 11 and was able to hold above that level as traders opted for riskier assets, pressuring classic safe havens such as the dollar. Analysts said strong economic data globally buoyed expectations for European growth and worries momentarily eased that Egyptian protests would create broader unrest in the Middle East or lead to a shut down of the Suez Canal, a key artery for the transport of oil. Egyptian President Hosni Mubarak said in a televised statement that he will not seek re-election in September. "This morning's data was a big boost to risk appetite," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Esiner said the manufacturing readings in the 17-nation euro zone, U.K. and U.S. all added to the market's improving risk sentiment. That led to a broad sell-off in the dollar. The dollar fell to its lowest level against the U.K. pound since Nov. 12 and touched a nearly one-month low against the Swiss franc Tuesday. Manufacturing activity in the U.K. expanded at its strongest rate in at least 19 years in January, while euro zone manufacturing activity jumped to a nine-month high. U.S. manufacturing activity last month reached its highest level since 2004. Strong economic readings added to expectations that the European Central Bank will be forced to raise interest rates to fight rising inflation this year. The Bank of England could also contemplate a rate hike to rein in rising inflation.

FOREX AWAL BULAN FEBRUARY 2011

EUR/USD
Friday's sharp setback puts the key projected support level at 1.3540 under pressure. Last week's spinning top candle leaves the uptrend neutralized for now and a break below 1.3540 would attract further weakness toward 1.3425 and the Jan. 20 low at 1.3396. Keeping 1.3540 intact would prompt a recovery towards 1.3665 and 1.3715, but only a sustained push above the latter would re-open the 1.3760 high.


GBP/USD
Bears are protecting the 1.6000 level following the setback off last week's high at 1.5990 and support at 1.5826 is likely to be breached. Such a move would pave the way for further weakness toward the Jan. 25 low at 1.5752 and threaten a much sharp decline towards 1.5650 and 1.5490. Keeping 1.5752 intact would suggest more lateral consolidation is needed towards 1.5990 before the bear threat materializes. Only movement above 1.5990 would negate the bearish outlook, opening the Jan. 18 reaction high at 1.6058.


USD/JPY
Bears have regained control of the short-term following Monday's probe into fresh four-week lows below 81.85. The failure to hold onto last week's rally to 83.22 highlights the negative undercurrent and further weakness is expected toward a wave equality target at 81.37. A three-month bear pennant support line lies at 81.25 for Monday's session. Corrective strength is limited to the 82.50 area.

AUD/USD
Remains within a bear pennant and Monday's recovery off 0.9866 threatens a return to the upper half of the continuation pattern. Resistance at 1.0004 and 1.0023 lie in front of the bear resistance line at 1.0051, but an upside resolution is not expected. Loss of 0.9912 would threaten a return to the 0.9866 low and the bear pennant support line at 0.9854.


FOREX FOCUS
Like old New Year resolutions, the optimism in financial markets at the start of this year is quickly being forgotten. As January turns to February, markets are once again being driven by fear: fear that the rioting in Tunisia and Egypt will spread to oil producers in the region; fear that the rise in commodity and food prices is getting out of hand; fear that a euro-zone debtor will yet default; fear that China will hike interest rates and slow its economy; and fear that rating agencies will now become more aggressive in downgrading debtor countries. This is a far cry from the heady days earlier this month when confidence in the global recovery was on the rise and sentiment was being driven more by inflation and rate hike expectations instead. Risk was back on and investors were busy seeking higher returns. Right up until Wednesday, the Dow Jones Industrial Average was climbing to a new two-and-a-half-year high. But now, risk is most definitely off. The rot appears to have started in, of all places, Tunisia--a country associated more with cheap package holidays rather than with food riots, that not only managed to topple the Tunisian government but have since spread to Egypt and raised political tensions across the region. The demonstrators have not only focused global attention on the recent steady rise in food prices, with the price of wheat at a two-an-a-half-year high and the wholesale cost of sugar at a 30-year high, but they have instilled fear over what would happen if the governments of oil producers in the region were the next to fall. Safe havens have also become popular again as fears over euro-zone debts have returned. The euro may have been supported for much of the early part of this year by rising hopes of a political solution. However, the longer the market waits the weaker the solution looks, with European Economics Commissioner Olli Rehn confirming Thursday that the European Union will not increase the EUR440 billion of guarantees for debtor countries.


EUROPE
Political tensions in Egypt, where the clamour to unseat President Hosni Mubarak has been growing steadily, are helping support currencies perceived as safe in the European session Monday, namely the U.S. dollar, yen and Swiss franc. Earlier Monday, Moody's Investors Service Inc. downgraded Egypt's government bond ratings to Ba2 from Ba1, sharpening the focus on the Arab world's most populous nation and on wider perceptions of risk. But while stock markets around the world have been suffering falls as Egyptians take to the streets for a seventh day running, the impact on currency markets has been a little less clear. The Egyptian pound was weaker, and that led the Turkish lira lower. But while the U.S. dollar, yen and Swiss franc have all risen, their gains are stalling. Commodity currencies, including the Australian and Canadian dollars, were propped up amid concerns that troubles in Egypt may have a knock-on effect on commodity prices. The euro, meanwhile, has come back from the falls it suffered during Asian trading hours. The Egyptian pound hit a fresh six-year low against the dollar, with the dollar peaking just above EGP5.87. The Turkish lira fell, with the dollar rising to TRY1.6202, while the Israeli shekel eased to ILS3.760.
The big question remains how far the fallout from turmoil in Egypt will stretch. "The unrest in Egypt and the fear of a spillover into the rest of the Middle East is generating some safe-haven flows, although these are more muted than generally expected," BNP Paribas analysts said in a research note. "We would expect the dollar to remain supported, with the broader weakening trend seen over the past couple of weeks now coming to an end. The Swiss franc and Japanese yen are also likely to benefit to some degree in the current environment," they added. What began in Tunisia has spread to Egypt and there are reports of protests in Yemen and Sudan, but the area's major oil producers haven't been affected so far.


ASIA
The euro fell against the dollar and yen Monday in Asia as investors dumped the risk-sensitive currency on fears that ongoing political turmoil in Egypt could spread to its oil-producing Arabian neighbors. In Cairo, anti-government protesters are violently demanding the nation's longtime President Hosni Mubarak leave office, sparking armed robberies and a death toll of more than 100. The development prompted investors to sell risk-sensitive shares and the European common currency, and dealers said they are likely to keep falling for the time being. "What is possibly occurring now is a transition of the social structure in Islamic counties, and because the world has never experienced it before, nobody has a good idea of what might happen next," said Yoichi Itoh, chief analyst at STB Research Institute. Investors are now wary of the uncertain risk that similar protests will spread to nations with rich oil reserves such as Yemen, Jordan, and Saudi Arabia, which would severely hurt the global supply of crude. Market participants have started to factor in the world with an unstable oil supply, preparing for a scenario where their concerns turn into a reality. "Emerging nations' economic momentum may lose steam, and the global economy as a whole may see sharp declines in growth. That's negative for the euro," said Kenichiro Ikezawa, a senior fund manager at Daiwa SB Investments.


WORLD
The dollar and other safe-haven currencies gained on Friday in New York as investors sought refuge from the turmoil in the Middle East, where Egyptian protesters faced off against the police and army in violent clashes. The euro fell broadly as traders worried the single currency was at further risk as the political unrest in Egypt threatened to spread to neighboring Arab countries. In addition to the Egyptian situation, the dollar could be gaining allure as a safe harbor for investors worried that the year's early gains in stocks and other riskier asset markets could be reversed quickly. "With many secretly eying a retracement in the equity market, it makes sense to be holding dollars as a potential safety play," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Conn. Volatile markets showed investors were worried the political crisis could spread in the Middle East. Oil was also a huge beneficiary of the Egyptian turmoil. Traders are spooked that shipments through the Suez Canal might be disrupted, which would be a major blow to the global economy. The stock market decline has been exacerbated by the potential impact of disruptions in oil supplies. Light, sweet crude prices jumped and the Dow Jones industrial average fell more than 1%. "The Middle East story has grabbed people," said Tom Tucci, head of government bond trading at RBC Capital Markets in New York. The worry is that tensions "are going to spread and that there are going to be more uprisings and issues in the Middle East."


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FOREX FOCUS, WEDNESDAY (JANUARY 26, 2011)

EUR/USD
Having negated Monday's neutralizing doji, the powerful uptrend is set to extend into fresh two-month highs above 1.3705. The 61.8% Fibonacci retracement level of the 1.4283/1.2860 bear wave at 1.3739, and the Nov. 22 high at 1.3786 are the immediate targets, with scope for a wave equality target at 1.3841 in the coming sessions. Support lies at 1.3625 to protect Tuesday's low at 1.3573.


GBP/USD
Stages a corrective recovery off Tuesday's low at 1.5752, but upside risk will struggle once the 1.5857 target is met. The 1.5905 area limits scope for corrective strength and action is taking shape within a bear flag pattern. A push below 1.5779 would bring the 1.5752 low back into the picture, threatening further weakness towards key support at 1.5665.


USD/JPY
Tuesday's low at 81.97 is back under pressure, as the setback off the Jan. 20 high at 83.13 looks to extend. Bears are targeting the key Jan. 19 reaction low at 81.85, but only a fresh wave of bear pressure would manage to force a break through 81.85 to expose the near three-month bull support line at 81.20. The 82.30 level has become pivotal for the near-term and a break above there is required to lift the tone, opening 82.67.


AUD/USD
This week's strength is transforming a bear flag into a bear pennant continuation pattern, which puts Monday's high at 1.0023 at risk. A break through 1.0023 would open a measured target at 1.0051, and bring the Jan. 19 high at 1.0079 into the picture. Failure to break through 1.0023 would prompt a setback towards Tuesday's low at 0.9890, but only below the latter would expose the Jan. 20 low at 0.9832.


FOREX FOCUS :
The yen is about to be carried lower. For the last three years, the Japanese currency has largely ignored fundamentals as the global financial storm boosted its attraction as a safe haven. Despite a continued threat of Japanese deflation, record levels of Japanese monetary easing and repeated efforts at fiscal stimulation by Tokyo, the yen was pushed steadily higher, especially against the dollar. After rising to nearly Y125.00 in the middle of 2007, the U.S. currency fell to nearly Y80 by the end of 2010. So far, the yen has spent much of the new year in limbo, trading in a narrow range and showing little real direction. However, there are distinct signs that positive factors won't continue to work in the yen's favor. For a start, safe havens are swiftly losing their star status as the global recovery becomes more widespread and the risk of a major debt crisis in the euro zone starts to fade. Unusually heavy investor demand Tuesday for a debut syndicated bond issue by the new European Financial Stability Facility, designed to provide debt bailouts, was a clear signal of growing confidence among the investment community that the worst is over. There are even signs that the U.S. recovery may finally be picking up, with the U.S. Federal Reserve expected to give an upbeat economic assessment at its latest FOMC later this week. By contrast, the outlook for Japan remains fragile despite efforts by the Bank of Japan to paint a more optimistic picture. In its latest report earlier Tuesday, the central bank preserved its virtually zero interest rates and left its program for quantitative easing unchanged. It revised higher its forecast for growth in the current fiscal year but suggested that the recovery has "paused." This pause could also prove longer than expected, especially if the global upturn, which will be vital for Japan's recovery, doesn't prove as strong as anticipated


EUROPE
The euro is holding above the 1.37 level against the dollar in an uneventful session in European trading Wednesday, with no data on the calendar to trigger moves. The single currency is also benefiting from renewed dollar weakness in the wake of President Obama's State of Union speech Tuesday, in which he proposed a five-year freeze on government spending and sent Treasury yields lower. Investors eyeing the upcoming FOMC meeting at 1915 GMT for clues about QEII. Sterling is higher against the greenback, building on gains it made after the release of the BOE's MPC minutes.


ASIA
The dollar continued its fall against the yen and the euro Wednesday in Asia on lower Treasury yields as expectations grew that the U.S. may cut its spending in coming years following President Barack Obama's call for a freeze in federal non-defense, discretionary expenditures. Benchmark 10-year U.S. Treasury yields fell 8.0 basis points to 3.324% Tuesday in New York and stayed around 3.350% in Asia on growing expectations the U.S. may cut its spending in coming years, which would allow the U.S. government to issue fewer bonds. The expectations have increased on speculation that Obama would use his State of the Union address to push for a spending freeze. Obama said the plan would reduce the deficit by $400 billion and bring discretionary spending to the lowest share of the U.S. economy since Dwight Eisenhower was president in the 1950s. Market reaction to the address was limited, since almost all of the key points were known in advance, dealers said. Trading was also subdued as investors awaited the outcome from the Federal Open Market Committee meeting due later in the global day. The euro also gained slightly against the dollar, although it became prone to profit-taking after it hit a nine-week high of $1.3705 late Tuesday in New York. But given recent inflationary pressure in the euro-zone and a strong economic recovery in Germany, the euro is likely to maintain a bullish trend against the dollar in the near term, said Junichi Ogawa, a market analyst at FX Online Japan. With new hawkish voting members on the board at the FOMC meeting, speculation has been increasing that the outcome might push U.S. bond yields higher, but "a surge in the U.S. bond yields now seems unlikely," said Yuichiro Harada, senior vice president of forex division at Mizuho Corporate Bank. While investors are focused on the FOMC meeting, no major changes in policy are expected, said one options dealer at a major Japanese bank. "This meeting is too early to discuss what's going to happen" after the second round of quantitative easing ends in June, the dealer said.


WORLD
The British pound slid sharply against the dollar and euro Tuesday in New York as investors' optimism faded about the U.K., following news that its economy unexpectedly shrank at the end of last year. Meanwhile, the euro in New York briefly jumped above $1.37, a two-month high, as traders closed out more negative bets against the single currency. The U.K. pound has moved higher recently because of expectations that Britain's central bank could eventually raise short-term interest rates to tackle the U.K.'s high inflation rate, which is nearly 4%. That trend abruptly reversed, as the pound slumped to an 11-week low after the British government said the economy contracted 0.5% on an unannualized basis in the fourth quarter--worse than most forecasts--after growing 0.7% in the previous quarter. "It came as a big surprise," said Steven Englander, G-10 currency strategist at Citigroup in New York. "Investors had been generally optimistic about the U.K. economy." The pound posted more losses against the euro after a speech by Bank of England Governor Mervyn King was interpreted as relatively "dovish," or more concerned about stimulating economic growth than inflation. But Englander warned that preliminary U.K. economic data are notoriously unreliable and could be revised significantly in future readings. Britain's Office for National Statistics also said the U.K.'s economic performance would have been a little better--roughly flat--were it not for bad weather that battered Britain's economy late last year. At the same time, observers noted that the latest figures showed Britain's construction sector, a key driver of the economy lately, may be helping the economy less than previously thought. The latest data put the Bank of England in a bind: Policy makers must tackle Britain's surging inflation problem without hurting the economy by raising rates in an environment in which many government spending cuts have yet to take effect.