• Monday’s gains in EUR and AUD suffer retracement
  • Japanese FM Fujii to resign over health concerns
  • US factory orders rise 1.1% in November, stronger than expected
  • US pending home sales fall 16% in November; much weaker than forecasts
  • Pimco: 80% chance UK will be downgraded if maintains deficit plan
  • Darling: Can’t cut deficit too deep; would risk recovery
  • Iceland downgraded to BB+ from BBB- by Fitch; placed on watch for downgrade by S&P after Icesave veto; losses investment-grade rating
  • US adds duties on more Chinese steel products
  • US auto sales rise to 11.25 mln annual rate in December. Total sales for 2009 10.5 mln, weakest since 1982
  • US yields fall; 2-yr note down 6 bp to 1.01%; 10-year yield falls 7 bp to 3.76%
  • US equities end at 15 month high, up 0.3% at 1137

What looked like durable trend toward risk assumption at the dawn of the New Year sojn faltered in the US today as Aussie recoiled trendline resistance at 0.9175 first thing this morning.

EUR/USD made a run at 1.4500 barriers in Europe this morning but ran into selling from the BIS at the 1.4480/85 level. Demand at the 1.4400 level held the line on pullbacks for a while (BIS and a UK clearer were touted buyers) but prices fell below that level, triggering stops below 1.4400 and again below 1.4375 and 1.4350. 1.4345 was the low of the day. Prices bounced from just ahead of the 61.8% retracement of the rally from 1.4255 lows Sunday night which is located at 1.4342. Rebounds were seen to the 1.4370/75 area late in the session.

Cable was under pressure throughout the session after a US investment house issued a buy recommendation in EUR/GBP. Comments from Pimco that they see a high probability of a UK debt downgrade from AAA if the deficit plan is not improved helped push prices through 1.6000, triggering stops. Prices fell as low as 1.5967 before steadying. 1.6000 was recouped in the afternoon.

AUD/USD came off heard in US trade after heavy sales from US leveraged players into strength. Prices dipped below the 0.9100 level before bouncing from 0.8092. We end at 0.9120.

USD/JPY sold off heavily at mid-morning as profit-taking dominated the session. Japanese exporters sold rallies above 92.00 this morning and buying by Kampo at 91.60 only slowed the decline. BIS bids were rumored near the 91.26 lows. Prices bounced into the 91.70s in light afternoon trade.