EUR/USD

From KBC: KBC notes that the upcoming EU summit will be closely watched as EU leaders try to figure out a way to put an effective rescue package together. “From a market point of view, the key question is whether the leaders will be able to convince markets that they have made enough progress to finalized the process in the near future. If the summit would show too many signs of disconcert, some doubt might again creep into the market,” they said. They also comment that this would result in further profit taking on the recent EUR/USD rally.

From Danske Bank: U.S. non-farm payrolls rose by 36,000 in January and the December number was revised to 121,000 from 103,000. Economists had expected an increase to 143,000. The unemployment rate however, fell from 9.4% to 9.0% compared to the 9.5% that was expected. “Although we look for an upside surprise, the effect on EUR/USD is ambiguous. We expect that it will support overall risk appetite, thereby leading to further upside for the EUR, Scandies and the commodity currencies (AUD, NZD and CAD). This could reverse some of the EUR’s losses yesterday, after the dovish comments by Trichet caused a correction lower in EUR/USD,” said a research brief from the bank.

From TD Securities: Turning to the technical picture, strategists at TD report that EUR/USD is ending the week on a soft note. “Reversal signals are starting to flash on the short-term charts and we think that further losses – below 1.3600/05 specifically today – are liable to tip the EUR lower again,” they said. They also expect stop losses to accumulate just under Monday’s low of 1.3570.

USD/JPY

From TD Securities: TD reports that US yields are rising and 10-year rates are testing December highs. “US-Japan spreads are trading a little below the peaks seen in December (233 bps versus 225bps) are still USD-supportive and we look for USD/JPY to nudge a little higher at least from current levels – if risk sentiment remains constructive,” they noted.

From KBC: KBC notes that from a day-to-day perspective, the yen is well bid but USD/JPY is showing signs of bottoming out, with 80.93 as the first important support. “In case of return action to that area, profit taking on USD/JPY shorts might still be considered as we expect that Japanese authorities will try to prevent a quick break below the 80.22 area,” they said. 

GBP/USD

From TD Securities: TD reports that data released in the European session showed Halifax house prices were stronger than anticipated in January. Prices rose 0.8% MoM compared to the consensus of - 0.3% MoM. “The weather would have influenced the composition of sales in December and the correction in January, so while the volatile series does not signal a sustained recovery in the housing market, it does add to evidence that beneath the snow, the UK economy continued to recover,” they said in a research brief.

From KBC: KBC reports that following last week’s shocking Q4 GDP release, it was expected that it would be difficult for the Bank of England to reduce policy stimulation even though inflation is far too high. They note however that this week’s business confidence indicators altered this negative perception of the U.K. economy and this will lead to much debate at next week’s MPC policy meeting. “The pair dropping below to 0.8499 neckline is a short-term negative for this cross rate. However, markets have already discounted quite a high probability on an ‘early’ UK interest rate hike. So, the question is whether sterling will get much additional interest rate support from now. One shouldn’t be in a hurry, but we still look to buy when the momentum of this correction slows,” they noted.

AUD/USD

From Danske Bank: The bank reports that AUD gained some traction following the RBA Quarterly Monetary Policy statement as it raised the medium-term growth outlook. “As expected, the RBA revised its near-term growth outlook lower due to the floods. However, the inflation forecasts were kept elevated, pointing to the risk of further hikes,” they noted.

From Westpac Banking Corp: Also commenting on AUD strength following the RBA statement, Robert Rennie, chief currency strategist at Westpac Banking Corp. said: “The initial picture you get from the statement is a strong recovery that will see inflation through mid-2012 pushing the upper end of the band. The RBA is looking through the short- term impact of the recent floods. That is all about growth and a strong economy. So from that point of view, good for the Australian dollar.”

USD/CAD

From TD Securities: TD reports that CAD was already outperforming against its peers before the release of stronger-than-expected Canadian employment data in the early hours of the North American session. The report showed 69.2K jobs were created in January, much higher than economist’s expectations of 15K. “The well above expectations outcome for January job growth should propel the currency even higher on the day,” they said.

From BMO Capital Markets: Also commenting on the Canadian employment data, C.J. Gavsie, managing director for foreign-exchange trading at BMO Capital Markets said: “It’s a blowout number. We’ve seen a very good knee- jerk reaction in Canadian dollar strength.”