On Friday, EUR/USD trading was confined to a very tight range close to the 1.48 mark. Early on Friday in Asian trading it looked as if single currency would test the psychological level of 1.50 anytime soon. However, the move was somewhat suspect as it happened in very thin trading conditions and EUR/USD soon returned to the levels that were on the screens on Thursday evening.

The only eco data of importance, the Euro-zone PMI’s, failed to inspire trading and this was also the case for the rebound on the stock markets. The first indications from the Black Friday sales were positive, but it is too early to conclude that the consumer will keep the US economy afloat.

This morning, EUR/USD still trades in the low 1.48 area. Today, the calendar is almost empty, so the developments on other markets and in particular on the stock market might set the tone for trading.

Over the previous weeks, an ongoing stream of negative headlines from the US housing and mortgage market and on its negative impact on the financial sector weighed on the US dollar. In a longer term perspective, the credit crisis probably is far some solved and new negative credit headlines probably won’t be good news the dollar.

However, in a short-term perspective, the markets (stocks, bonds and also the dollar) probably have already priced in quite a lot of bad news and might be in for some consolidation. If no additional bad news comes to the forefront, this might also help to unwind some overbought conditions in EUR/USD.

So, we start the week with a neutral to cautiously ‘negative’ bias for EUR/USD. The 1.4967-area should give protection on the upside. In a day-to-day perspective, we install partial stop-loss/stop profit protection on EUR/USD longs short-term (EUR/USD currently tries to drop below the STMA at 1.4840). Our longstanding view remains dollar negative.

On Friday, the yen gradually regained most part of its early losses against the US dollar and rebounded from levels around 107.60 in Asian trading to the 108.00 area. With Japanese markets closed and US trading desks only thinly staffed, the (European) stock market performance was the most important driver for yen trading.

This morning, Asian stocks start the week on strong footing. This intrinsically should be yen negative. However, the Japanese currency got some support from a newspaper article that a big Chinese investment fund might start to buy Japanese stocks ‘soon’. China didn’t confirm this news. So, after all, despite the forceful rebound on the Asian stock markets, the yen losses are limited this morning and USD/JPY trades in the 108.40 area at the moment of writing.

Last week, USD/JPY dropped below the key 108.95 area. From a technical point of view, this break below a neckline only can be considered as a strong positive sign for the yen in a longer term perspective.

However, despite our long-standing positive bias on the yen, we turned somewhat more cautious on the yen short-term at the end of last week. We are a bit reluctant to jump on this move and to add yen long exposure at the current levels. In case stocks enter calmer waters, this also might slow down the ascent of the yen short-term. So, we watch out for a more pronounced correction in the yen cross rates. A return of USD/JPY to the 111-area, if it were to occur, in our view would be a good opportunity to add/reinstall yen long positions. A re-break above the 111.75 area would be a first warning signal that the short-term yen positive momentum is waning (stop loss).

EUR/GBP on Friday continued to test the recent highs in the 0.7210 area, but the pair this time didn’t manage to make another leg higher and in fact held a sideways trading pattern. The calming down in global (stock) markets probably also gave the sterling some breathing space, after being battered by the negative news headlines from the financial sector in recent weeks. The (slight) downward revision of the UK Q3 GDP had no lasting impact on trading.

This morning; a survey by Hometrack showed that UK housing prices dropped for the second month in a row. However, the impact of this news on sterling trading is limited. Even more, in line with the easing of global tension this morning, the sterling even tries to regain some ground and currently trades in the 0.7175 area.

In line with EUR/USD and with the yen, we are also going into this week with a more cautious bias for the sterling short-term. The sterling was sold off in quite an aggressive way recently and some cooling of market tension might also help the sterling to unwind some of the oversold conditions.