US equities have opened very soft, down 1.5% which is helping drag down US Treasury yields. Soft economic data from the US and growing Greek jitters are undermining market confidence across the board. Throw in Bernanke and the Hill and the health care summit in DC between Dems and Reps and the market is scared out of its wits…

Gold is down to  $1062, almost $50 lower on the day. Oil is down over 5%, on the $72 handle once again. Copper is a relative strong performer, down only 3% on the day after a 4% slide yesterday. Contagion has spread to the emerging markets with Brazil off 4.7%. No real place to hide in a market like this, though the dollar and JPY are doing their best impersonations of safe havens.

Looks like we are getting a last wave of pre-weekend risk aversions as stocks , bond yields and commodities slide and the dollar rallies versus EUR, AUD, GBP (for a change) and CHF (thank’s SNB!). The S&P is down nearly 1%, Oil is below $73, and the buck is at its highs pretty much across the board.

With the Swiss franc no longer a viable safe-haven over the weekend, the JPY seems to be playing that role late in the day. EUR/JPY continues to give up its earlier gains, as does USD/JPY.USD/JPY is at 90.25.

124.80 is important support for EUR/JPY in the near-term while 124.38, the low dating back to the end of April last year will come into play if the aforementioned level gives way. It trades now at 125.20 after a post-data rally to 126.70 this morning.

The macro unwinding of the reflation trade remains relentless today regardless of the relatively strong US data.

This report in the FT suggests that Wall Street bankers will combine their lobbying power and use the World Economic Forum in Davos as an opportunity to lobby the Obama administration to soften the proposed regulatory reforms.

I’ve spoken with three prop traders already this morning and the general tendency is to be short AUD/USD and EUR/USD. The reasoning is that these are potentially the best plays if a lengthy period of risk aversion develops, similar to what happened around the time of the GFC. There does not seem to be a whole lot of conviction behind the positioning, more like going short because the market is going down.

EUR/CHF was the main trigger this time but it has thankfully rebounded some after a 100 pip fall. The risk-aversion trade of selling the EUR and the AUD against the USD, JPY, CHF and even the GBP (how things have changed!) is in full flow today. As mentioned in the comments below, there looks to be a very strong bid at 1.4300 in the EUR/USD and that is stabilising the market. Also as I’ve mentioned a few times earlier, watch out for trailing stops above .8920 in the AUD/USD which may come under scrutiny in these thin and volatile markets.

EUR/CHF has been hit hard just as EUR/JPY has been with USD/CHF falling in tandem with USD/JPY. This is just like the panic we saw last year but to a much lesser degree of course. Both USD/CHF and USD/JPY are gapping hard and liquidity is poor. Be very careful. These are big risk-aversion cross moves.

EUR/USD has slumped back below the 1.4700 level amid another round of risk aversion. Emerging market currencies are being sold, commodities dumped and the dollar strengthening. Volumes are thin, so markets will remain whippy, traders feel.

S&P just put out a statement saying the UK debt outlook is unchanged after the PBR. Perhaps that will calm jitters slightly.

The problems in Greece are not going to go away in a hurry and today has seen banking stocks continue to fall and government bonds tumbling even faster. This issue will continue to weigh on the EUR, and especially on EUR/JPY, the typical risk aversion pair.

Creditors are refusing to extend debt payments from Dubai World, threatening to prolong the debacle and increasing the chances of default on it’s $26 billion debt.

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