Jan 12 ( Global-View ) Heading into the mid-week period, the USD is looking decidedly heavy. It appears that EURUSD bottomed late last week on the back of the poorer than forecast employment data. Now the USDJPY has unexpectedly turned south even after new Finance Minister Kan seemed to send signals that a 95.00 level in the pair is what official Japan would like to see.

We take the wishes of Japanese officials seriously in forex because they usually get what they want over time. They have considerable financial resources at their disposal to make things happen. Japan also usually tends to favor a weak forex policy to help exporters, such as the auto industry do well. We have heard that the industry foreign exchange rate target levels for Japanese automakers are USDJPY 95 to 105. Current forex trading circumstances are difficult with the USDJPY heading down decisively while our fundamental side expects the JPY to weaken. In this environment, we like the idea of stepping aside until the technicals come into line with the fundamentals for this currency pair.

This is not a week marked by a lot of news on the fundamental side. This suggests two things: (1) the technicals are in control and (2) traders are likely to revert to the equity to USD (negative to the USD) trade because it works, not because it makes sense.

We've noted recently that momentum traders have been moving into the long EURUSD trade. With momentum traders now short USD, they will be looking for news and/or price action that will support their positions. Markets has been influenced by the softer than expected U.S. January jobs data released last Friday, but that news is starting to get a little stale by now. The next block of key data this week looks to be retail sales and weekly jobless figures on Thursday. St. Louis Fed Governor Bullard reinforced yesterday that U.S. rates could stay low for an extended period of time. Thus the USD has lost its interest rate support for now. The yield on the 2-yr note, which is a useful forecaster of near-term Fed policy for the next 24 months, has fallen again today to 0.91%, -2bps. Two-year note differentials are good leading indicators of future exchange rate developments.

As noted in our weekend analysis, weakness in the U.S. and Europe seems likely to persist as these economies work their way through the aftermath of the real estate bust and the credit issues such created. On the other hand, developing markets in the Far East continue to perform well fueled in large part by demand out of China. China allowed its one-year bill rate to creep higher again today and raised bank reserve requirements.

Today sees key trade figure data releases from the U.S. and Canada. Check on the forex forum for up-to-date market developments and trading ideas. Also see the ECONOMIC CALENDAR for upcoming forex market events. Also you can check the latest forex trading news & updates online.