Friday saw a classic resumption of the weaker EUR move on a buy the rumour, sell the fact type of reaction to the US employment event risk. Although the horrific ADP number earlier in the week had rumours swarming of possibly the worst Nonfarm payrolls number ever, the actual result came in in-line at just above -500k, though the unemployment rate jumped a whopping 0.5% to 7.2% and the previous months' data was revised heavily for the worse. All in all, there was nothing to cheer about and risk aversion kicked in across the board and showed that the USD and JPY are still the broad outperformers when that is the case.  For EURUSD, the 1.3180 level is the next technical area of interest (55-day moving average) below last week's 1.3314 low.

With renewed weakness in equity markets, the carry trades are looking vulnerable again to a continued unwinding and could be lead by EURJPY, as the New Year seems to have been the crucial pivot point for the EUR to change from dramatic out- to underperformer. Let's see how the pair behaves at the big 120.00 area. The US S&P500 closed right at its 55-day moving average after crossing above that average to kick off the New Year.

Competing on the race to the bottom, however, could be AUD and CAD, as risk aversion and the renewed commodity weakness should be hitting these currencies hard as well. AUD is already showing some deserved and pronounced weakness and the numbers there seem to be showing an acceleration to the downside. The Australian employment report this week (Thursday) will be a focal point. CAD, on the other hand, has shown some surprising resilience, perhaps due to some piggybacking on the US dollar strength. But these levels below 1.2000 look unjustified with oil back at 40 dollars/barrel again and after the "also awful" Canadian employment report on Friday. The 1.1750 area seems to be a line in the sand for the moment as support, and we look at that 1.2000 area as a possible trigger point for a renewed rally in USDCAD. (1.2085 is the 21-day moving average and could also be important as this moving average seems to have been in focus lately).

The pound continues to find buyers after reversing December's parabolic extension of its sell-off. It's hard to believe that sterling has only taken back half of December's losses. Friday's low below 0.8850 was an exact 0.618 retracement of the last rally leg from 0.8235. The 55-day moving average comes in at 0.8700 at present. PM Brown is expected to announce a jobs package today worth GBP 500 million aimed at long term unemployed.

The highlights for the economic event risk calendar this week are:

Tonight: UK RICS House Price Balance (the worsening seems to be slowing in the UK housing market)
Tuesday: UK Trade Balance, US Trade Balance (expected to be the lowest since 2004)
Wednesday: US Advance Retail Sales (for crucial December month)
Thursday: Australia employment report (time for an acceleration to downside?), Germany CPI, ECB rate announcement (-50 bps to 2.00% expected though some debat this), US PPI, US Empire Manufacturing, US Philly Fed
Friday: US CPI, US TIC Flows, US Michigan Confidence