Economic News
 
USD

It has been a long time since we have seen a broad based greenback rally, including against the JPY, where despite a widespread liquidation of carry trades, the USD/JPY barely budged. The USD rose yesterday despite a surprise drop in the ISM non-manufacturing index. Trading was volatile largely on the back of a significant contraction in ISM services figures which came in at 41.9, the lowest reading since Oct 2001.
That intensifies concerns of a recession in the U.S. economy, pressuring the Fed to cut rates further. Currently, the Fed Fund Futures are pricing a 70% chance of another 50bp cut next month.

Along with this, it's important to mention that there are signs in the FOMC policy statement from last week according to which, the Fed may moderate its aggressive policy actions. Nevertheless, if the U.S. financial markets will destabilize once again, there is no doubt that Federal Reserve will cut again. The U.S. economy is in trouble and it seems as if the recession has hit. The continuing deterioration of the labor market, housing market and now the service sector, leaves little doubt that the biggest economy is falling into a recession. As for today's' U.S. calendar, expect Nonfarm Productivity and Unit Labor Costs indices on tap. Both of these indicators are due to be released at 13:30 GMT. Later today, the Philadelphia Fed President Plosser is scheduled to deliver a speech. It appears that the greenback might continue yesterday's correction move before probably initiating another bearish move.  

EUR

The EUR fell yesterday against USD. The European currency lost yesterday some 180 pips, which makes it the biggest move in the pair since the Fed surprised the markets with a 75bp intermeeting rate cut. The EUR particularly dropped after the German Services PMI and Retail Sales fell more than expected, indicating that the U.S. economic slowdown is spreading to Europe. This is a reliable indication that the Euro zone is heading towards a period of significantly weaker growth during the remainder 2008. The poor PMI Services data, which was released at 50.6, the lowest figure since July 2003, prompted speculations that the ECB will be forced to trim its growth forecast and eventually ease monetary policy this year. Also yesterday, the Euro zone Retail Sales fell short of expectations in the month of December as weak consumption in Germany offset stronger spending in France.

Overall, the EUR traded with a low of 1.4620 and a high of 1.4834 before closing the day at 1.4648 in the New York session. As for today, there is no economic data due to be released from the Euro zone. Although the EUR slipped yesterday, it is too early to eulogize the European currency. The accelerating U.S. economic recession leaves quite a little doubt that the EUR will head back up after the current correction will lose its steam.  

JPY

Despite a widespread liquidation of carry trades, the JPY was little changed against the USD yesterday. The JPY rallied against a number of majors due to continued concerns surrounding the U.S. economic slowdown. Overall the USD/JPY traded with a low of 106.60 and a high of 107.74 before closing the day at 106.73 in the New York session.

This morning, the Japanese index of Leading Economic indicators released inline with expectations at 40%, but still the number stands much below 50% (the acceptable minimum for a growing economy). The data suggest that downside risks to the Japanese economy are increasing. Recently released industrial output figures showed negative production forecasts for January and February.

Today is expected to be a devoid of data so we should see the JPY continues on its bearish path.

Technical News
 
EUR/USD

The pair dropped more than 200 pips since the beginning of the week, and it looks as if the corrective move might continue. The 4 hour chart shows a bullish cross that might slow down the downtrend locally, yet the daily chart confirms that the bearish move is valid. Next target price might be 1.4580.

GBP/USD

The cable dropped massively in the last 48 hours yet failed to breach the 1.9600 level. The 4 hour slow stochastic indicates a moderate bullish momentum, however the daily studies show distinct bearish notion. Selling on highs might be wise today.  

USD/JPY

The pair has traded in a tight range for a while with no distinct direction. The Bollinger Bands are getting tighter, and the 4 hour Slow Stochastic is showing a bullish cross. Oscillators strengthen the notion that if a sharp break will occur, it will most likely be bullish. Forex traders are advised to wait for the break and swing with it.  

USD/CHF

After spiking through the 1.0750 level without a significant breach, the pair is in the middle of a correction that appears to have some more steam in it. The slow stochastic and RSI of the 4 hour chart show that a reversal cross is not due today, which means that the bullish momentum might continue.  

 
The Wild Card
 
Crude Oil

Oil is correcting down with great momentum and initiated the first step in a bearish channel formation. The 4 hour chart is showing strong bearish momentum, and the lack of a cross in the daily slow stochastic should strengthen Forex trader's confidence in the bearish trend. Next target price might be 87.00$ a barrel.