Yen remains weak further to G7 warning

The Yen remains on defensive on Monday gaining little support from the weekend meeting of the G7 which tried to warn investors against selling the Yen too aggressively. Bank of Japan governor Toshikiko Fukui said late on Friday he would like to discuss whether the Japanese economy is moving in a positive direction at the BoJ�s next policy board meeting and European Central Bank President Trichet made a strong message saying: �we want the markets to be aware of the risks of one-way bets, in particular on the Forex market�.

News and Events:
The Yen remains on defensive on Monday gaining little support from the weekend meeting of the G7 which tried to warn investors against selling the Yen too aggressively. Finance ministers and Central Bankers from the G7 said that Japan�s recovery was on track and expressed confidence that �the implications of these developments will be recognized by market participants�. European Central Bank President Trichet even made a strong message saying: �we want the markets to be aware of the risks of one-way bets, in particular on the Forex market�. This suggests a much greater focus on EurJpy from policy-makers, but intervention seems unlikely anytime soon. Bets on the Yen have been clearly to the downside in recent months with investors using Japan�s low interest rates to borrow Yen to fund purchases of higher yielding currencies. Bank of Japan governor Toshikiko Fukui said late on Friday he would like to discuss whether the Japanese economy is moving in a positive direction at the BoJ�s next policy board meeting. Elsewhere, the Canadian Dollar rose sharply against the US dollar after data showing Canada added 88�900 jobs in January, well above a forecast of 10�000. UsdCad fell -0.9% to 1.1723. This week, investors are waiting to hear testimony from Federal Reserve Chairman Ben Bernanke on Wednesday and Thursday. Analysts generally assume he will reinforce the current steady policy; recognizing the economy is globally doing better but inflation risks remain.

Today’s Key Issues:

JPY National Holiday � Japanese markets closed

GB 09:30 GMT: Produce Price Index Core Output expected 0.2% vs 0.1% (MoM) and 2.3% to 2.4% vs 2.3% (YoY), PPI Input expected
-0.7% to -0.9% vs 0.1% (MoM) and -0.2% to -0.4% vs 1.9%, PPI Output expected 0.1% to 0.2% vs 0.2% (MoM) and 2% to 2.1% vs 2.2% (YoY).
GB 15:30 GMT: December Leading Indicator Index.
USD 19:00 GMT: January monthly Treasury Budget statement expected 40B vs 21B.
NZD 21:45 GMT: 4Q Producer Prices- Inputs previously 2% and Producer Prices � Outputs previously 0.7%
JPY 23:50 GMT: January Domestic Corporate goods Price index expected 0% unchanged (MoM) and 2.4% vs 2.5% (YoY).

The Risk Today:

EurUsd has been stuck in the 1.2865 to 1.3075 trading range for a month now, with Thursday’s action nearing the top end. Violation of the upside would bring resistance at 1.3130 in focus (61.8% retracement of the 1.3298-1.2865 decline). Initial support still holds 1.2865.

GbpUsd formed resistance at 1.9750 (61.8% retracement of the 1.9917-1.9482 decline), where a break is required confirm a renewed bullish trend. Last week’s 1.9482 marks key support where a break would clearly damage the growing bull trend recovered from last week 1.9482 lows.

UsdJpy The recent recovery from 120 low has continued through 121.40 former resistance (61.8% retracement of the 122.20-120.10 decline); further strength would open the door toward the 122.20 trend high from last week. Former resistance 121.40 might provide some support. In case of a reversal lower than this level; further support is defined at 120.20 just over last year 120 former psychological resistance.

UsdChf support lies at 1.2376 late January low. A break of this level is required undermine the bull trend and also signal a reversal and target 1.2309 (38.2% retracement of 1.1881-1.2574 advance). While it holds, the trend remains up with Monday’s 1.2520 high marking initial resistance ahead of the key 1.2550 resistance.

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Resistance and Support: