Yen gains on improved data

Today's Highlights

Sterling slips on profit taking

US and Canadian GDP awaited

Yen gains on improved data

FX Market Overview

Sterling gave up some of its gains yesterday as profit taking set in before the month end. This was in spite of an improvement in consumer confidence to a 5 month high as reported by GfK. I apologise for the techie talk but the Pound dropped against the Euro back from €1.34 into the €1.32 area and is sitting atop the previous resistance level at €1.3250. This is a very important level; a break below here signals a return to the previous range but if the Pound can stay above that level, the scene is set for further Sterling strength. Drum roll please. We will see at 9.30 GMT whether credit and mortgage data will change those perceptions.

The Euro rebound seems also to have been prompted by profit taking. It happened in spite of a fall in German retail spending, relatively limp data from across the Eurozone and the ongoing Greek drama. We get Eurozone inflation and unemployment data at 10.00am UK time. German inflation fell into negative territory last month and the Eurozone is in minus figures as well. I doubt that will change with today's data. The euro remains under pressure.

US Markets have been buoyed overnight by upbeat earnings reports from Google and Amazon amongst others. That maintains the strength in the US Dollar. Thus far, the Sterling - US Dollar exchange rate has held up above $1.50 but it may only be a matter of time before that breaks and we see the Dollar eying the 2010 lows. That is down at 'gulp' $1.42. This afternoon's GDP data would have to come in below 3.5% for the Dollar to shed any of its strength.

By way of contrast, the Canadian Dollar, hampered by the recent interest rate cut and a falling oil price, is weaker than it has been since 2009 and seems destined to hit C$1.93 against the Pound. Events in OPEC countries will probably decide what happens then but this is undoubtedly a great opportunity for CAD buyers. This afternoon's GDP data is forecast to reflect a small scale drop in economic growth and that may well be the trigger for a move to C$1.93.

A small scale rise in factory output and a minor drop in consumer inflation allowed the Japanese Yen to make gains overnight. In fact, against the Pound, the Yen has gained Y12 in the last month after 30 months of decline.

And then it is the weekend and January ceases to be. It is hard to believe a month has flashed by since we were all singing Auld Lang Syne and pretending to know the words to the second verse. I hope yours is a good weekend. I don't know what your plans are but after the publication of comments made by Boris Johnson about the typical jihadist, I am guessing he will be out shopping for a bullet proof vest.