ForexLive European Wrap: Risk off, USD & JPY firm

• Japan Government says economy picking up, keeps assessment unchanged in January report
• China CPI forecast to rise 3% in 2010, PBOC might raise rates mid-year. CPI growth has accelerated significantly in December - Govt economist
• Japan’s Kan: Risk of economy suffering double-dip not yet gone. Hard to raise government economic view unless employment conditions recover
• MOF’s Ogushi: Not presently mulling extra budget for next fy. No plan to take policy steps recklessly and pour out government debt. Japan’s forex stance in line with G7 statement, no change under new FinMin
• Shanghai share index ends down 2.9% on fears of bank lending clampdown
• Germany’s Merkel: The crisis is not over yet. Credit supply to small and mid-sized firms one of most important issues in Germany this year
• China’s central bank sees increasingly serious inflationary pressure in future. Top 4 Chinese banks lent just over 500 bln yuan in first two weeks of January.  Chinese banks lent 1.1 trln yuan in first half of January-sources
• Bank of England MPC voted unanimously 9-0 to keep interest rates at 0.5%, QE at £200 bln at January meeting
• UK December jobless claims -15,200, better than median forecast -2,500. Biggest fall since April 2007. ILO unemployment 7.8%, better than expected 8%
• BUBA’s Fabritius: Developments in Greece, Dubai show high risks to growth, fragility of recovery.  If Greece does not sort out problems, bailout discussion will take on own dynamic. Will be no concession for Greece on collaterla rules

USD and JPY are the winners this morning amid growing risk aversion.  European stocks lower (albeit not hugely), oil off over a buck and gold off a chunk.

Increasing evidence China is reining things in has heightened jitters that a resultant slowdown there could stymie global recovery.  

The USD has been helped in it’s right by Republican Brown’s victory in Massachusetts which potentially slows Obama’s ambitious social agenda.  The euro continues to be hurt in it’s own right by worries surrounding Greece.

EUR/USD is down at 1.4155 from early 1.4205.  There have been ongoing reports of the BIS selling just above 1.4200.  So far buy orders, said to include ACB buying interest, have just about held the downside.  Stops said to reside just below.  On topside, sell orders touted  up at 1.4330/50 have never looked like coming into play.

Cable down at 1.6275 from early 1.6305, having been as low as 1.6253.  Stops said to reside just below 1.6250.  Bank of England minutes held no surprises.

USD/JPY down at 90.90 from early 91.15, EUR/JPY at 128.65 from around 129.45.  JPY beneficiary of increased risk aversion. Talk of strong US named seller up around 91.25 helping cap recent recovery attempts.