• USD: Higher, risk aversion rises on concern about European banks, weaker global equity markets
  • JPY: Higher supported by safe haven flows, GDP posts largest contraction in 35 years
  • EUR: Lower, pressured by fear of debt default in Ireland and concern about Eastern European banks
  • GBP: Lower, UK's RBS bank announces GBP 30 Billion loss, house prices remain near record low
  • CHF: Mixed, support from safe haven flows, gains limited by falling Swiss exports
  • CAD and AUD: AUD and CAD lower, risk sentiment falls, G-7 warns of risk of severe global economic slump

Overview

Negative news abounds with reports that Japan's GDP posts its largest contraction in 35 years, European press warns of the risk of debt default in Ireland and possible spread of East European debt crisis to Western European banks, UK's RBS reports another large loss and UK house prices remain near record low, and the G-7 warned of severe global economic slump through 2009. Equity markets traded lower in Asia and Europe. JPY and USD traded higher supported by safe haven flows, rising risk aversion and lack of mention of JPY and GBP in the G-7 communiqué. The G-7 communiqué stated concern about excessive FX volatility and the negative impact of excessive FX volatility for global financial stability. The G-7 communiqué made no reference to JPY strength or weak GBP but welcomed China's efforts on Yuan reform. US markets were closed for Presidents' Day holiday. The next key event risk for the Forex market is Wednesday's anticipated announcement of president Obama’s plan to help US homeowners with their mortgage payments. If the details of the plan are sketchy as the details of the financial bailout plan risk sentiment take will take another hit. If the mortgage subsidy plan helps to generate hope that US housing market will soon be stabilizing we might see an uptick in equities and improvement in risk appetite. Risk sentiment and the direction of equity markets are the key drivers for FX trade.

This week's US economic calendar includes the February 17th release of February Empire Manufacturing Index expected at -21.5 compared to -20 last month. Also on February 17th, February NAHB will be released expected unchanged at 8. On February 18th, January import prices will be released expected at -1.5% compared to -4.2% last month. January housing starts and building permits are also scheduled for release on February 18th. January housing starts are expected to improve to 540 K. January industrial production will also be released on February 18th expected at -1.2% compared to -1.5% last month. On February19th, initial jobless claims for week ending 2/14 will be released expected at 615 K. Also on February 19th, January PPI will be released expected at 0.1% compared to -1.9% last month. January leading economic indicators will be released on February 19th as well expected at -0.2% compared to 0.3% last month. And, on February 20th, January CPI is due for release expected at 0.1% compared to -0.7% last month.