Yen Temporarily Loses its Darling Status, Markets Await Critical US NFP Figures

· Yen: Asia Traders Continue to Sell JPY on Nikkei Advances
· Pound: Lower Industrial Production Figures Dent GBP Rebound
· Euro: German Exports Unexpectedly Grow, Boosting EUR
· Dollar: Markets Expect Predict Dismal Non Farm Payrolls Change

The USDJPY continued to retrace last week’s tumbles, as decreased market jitters encouraged Asia traders to re-enter profitable carry trade positions. Yen declines were hardly supported by economic data, however, implying that perceptions of overall market risk will continue to be the main driver of forex price movements. European traders followed suit and bought dollars, but a later decline in domestic stock markets and stronger-than-expected German data was enough to allow the EURUSD higher. A bearish drop in UK Manufacturing Production likewise boosted the Euro, sending the EURGBP to match post-ECB highs. Late London trading hours have seen a progressively slowing of previously volatile price moves, as traders stand on the sidelines ahead of the key US Non Farm Payrolls report.

Japanese economic data was not enough to slow Yen declines, with an impressive gain in January Machine Orders offset by increased appetite for risky investments. Government figures showed that domestic corporations continued to boost capital expenditures?ordering 3.9 percent more machinery through the first month of the year. Combined with bullish Q4 ’06 data, this suggests that a surge in CAPEX will only fuel further GDP growth and shows that businesses expect sales to increase in the medium term.

A relatively empty European calendar showed that German exports unexpectedly grew through January, improving outlook on a key source of domestic growth in 2006. Euro bullishness was perhaps offset with later French Industry data, which showed that year-over-year production fell for the second time in three months. This was strangely echoed in disappointing UK Industrial Production figures, allowing Euro bulls to reclaim the EURGBP.

Current price movements may ultimately amount to noise ahead of the all-important US Non Farm Payrolls report. All eyes will turn to the monthly figure for guidance on USD-denominated pairs. An improved Canadian employment report promises especially large price swings on the USDCAD; triggered stops have left the North American currency pair firmly below resistance of 1.1800, but surprises in the US figure could easily cause a retracement in such CAD gains. The EURUSD and USDJPY likewise remain near key price resistance levels, with a disappointing NFP figure to possibly force a run on stops above the 1.3188 for the Euro and a bounce off of resistance at 117.62 for the Japanese Yen.