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Nothing good in November jobs report (!)

NEW YORK (Dow Jones)--President-elect Barack Obama has promised his fiscal plan will include ideas to create 2.5 million jobs. But at the pace that businesses are cutting workers, 2.5 million jobs will barely make up for the jobs lost so far in this recession.
And the job cuts are not anywhere close to being done as the recession is expected to continue into 2009.
The Labor Department reported Friday that November nonfarm payrolls plunged by 533,000 jobs, a drop not seen since the severe recession of 1973-75. Worse still, Labor revised September and October payrolls to show that almost 200,000 more jobs were shed than first reported. All total, 1.25 million jobs were lost in the past three months.
Businesses have cut 1.9 million jobs since the U.S. fell into recession in December 2007.
Add in the normal influx of new and re-entering job seekers and Labor reported that the number of unemployed has risen by 2.7 million since last December, lifting the jobless rate from 5% to 6.7% last month.
In other words, Obama's target of 2.5 million new jobs won't even bring the unemployment rate back down to where it was before this recession started.
The employment report confirms what economists have been saying for weeks: The U.S. economy is contracting at the fastest pace since the 1981-82 recession.
After the employment report was released, economists scurried to mark down their projections for economic activity in the fourth-quarter. A drop of at least 5% in real gross domestic product is now widely expected, with Insight Economics estimating real GDP is contracting at a 6.5% annual rate this quarter.
A drop of 5% would be the biggest quarterly real GDP drop since the 6.4% plunge in the first quarter 1982. A drop of 6.5% would be the worst since the second quarter of 1980 when real GDP to plummeted at a 7.8% pace.
Real GDP dropped 0.5% in the third quarter.
The bleak outlook for the fourth quarter reflect the view that that the worsening job situation is sure to cause consumers to cut back on spending by even more in December than they did in November, as indicated by the negative same-store sales numbers reported by major retailers.
The November jobs report contained little hope for workers worried about their job or for people looking for work. As David Greenlaw, economist at Morgan Stanley, wrote, "Quite simply, there was nothing good in this report."
Manufacturing cut 85,000 workers; construction shed 82,000. Private service-producing companies let go 377,000 workers, the largest number since August 1983. Professional and business services cut 136,000; retailers dropped 91,300 workers; and the leisure and hospitality industries laid off 76,000.
Only the recession-proof hospital and education sector added jobs, to the tune of 52,000. State and local governments added 7,000 workers.
Total hours worked in November fell at an annual rate of almost 7% from their third-quarter average, confirming the economy is shrinking rapidly.
The jobless rate rose from 6.5% in October to 6.7% last month. That was less than the 6.8% expected but reflected a huge number of workers leaving the labor force. The number of discouraged workers (who stopped looking for employment because they do not think jobs are available) has risen from 349,000 a year ago, to 608,000 in November.
The unemployment rate in November rose for men and women, and across all levels of education.
Average hourly earnings rose 0.4% - double what was expected - but even that masks bad news. Many of the first laid off were younger, lower-paid employees. Once their paychecks are taken out of the equation, average wages rise.
As bad as the November report was, economists expect more hemorrhaging ahead.
"History tells that once the labor market weakens as much as it has in the past several months, job-shedding takes on a life of its own and tends to persist for a long while," said Joshua Shapiro of economics firm MFR Inc.
Economists expect the unemployment rate will easily rise above 8% in 2009. At least two firms, the forecasters at Morgan Stanley and Goldman Sachs, see a 9% rate by the end of 2009.
As a result of the shockingly bad jobs report, economists are even more convinced the Federal Reserve will cut the federal funds rate by 50 basis points, to 0.5%, at its December 15-16 meeting. Policy makers could also reach for more unusual tools in an effort to keep long-term rates low. Washington is expected to boost the next fiscal stimulus package, perhaps to $550 billion over the next three years, in order to end the recession.
But given the lag between passage and implementation, the package won't stop the downturn from continuing well into 2009, leaving more layoffs and pain in its wake.

November jobs report begs some ugly comparisons

NEW YORK (Dow Jones)--With the U.S. economy last month losing the largest number of jobs in 30 years, it's little surprise a number that dramatic would drive a scramble for some context.
The question is no longer whether a recession is happening - that's already been officially declared - but how bad the downturn is. And, most ominously of all, how close is the current downturn to the most feared scenario of all, namely, a replay of the 1930s and the Great Depression.
It's through that lens that economists are interpreting the loss of 533,000 jobs in November, coupled with a rise in the unemployment rate to 6.7% from 6.5%. It has been quite some time since market participants have seen such a dire performance from one of the most important barometers of economic health and, on the face of it, things look bad.
In absolute terms, November was grim. Economists at Wachovia Securities said that, based on the absolute payroll drop alone, November was the sixth biggest monthly drop in the post-war period.
With the exception of an ugly December 1974, four of the five top worst payroll declines came in the 1940s and 1950s, they said. Relative to what has been seen over the last quarter century or so, the 1940s through to the early 1960s were a relative volatile time for payroll changes.
The worst month of all was September 1945, which saw payrolls shrink by an awe-inspiring two million jobs, Wachovia Securities said. Of course, that month is easily explained by the end of World War II, which brought the start of the demobilization of a 16-million-member military and the winding down of a massive industry churning out war-related goods. The 1974 number is also hardly surprising, given the oil shock and the deep recession that prevailed then.
But these staggering declines have to be controlled for the size of the population and, from that perspective, the most recent month's number looks much less dire. Against the top 10 months of the absolute biggest job losses, November 2008 represented a 0.39% change, which puts it at the bottom of the 10. Compare that with the September 1945 change of nearly 5%. The next biggest monthly swing was the 1.9% move of October 1949.
This isn't to say that November was a great number, but it is worth noting that the U.S. economy has weathered a lot worse, and it has done so in the face of economic tumult that now appears far more modest compared with current events.
Against the current 6.7% unemployment rate, the measure neared 8% in the opening years of the 1990s due to a relatively modest recession, and it was above 10% by the end of the recession that started off the 1980s.
"I feel more optimism than a lot of what I read in the press," said Price Fishback, a professor of economic history and labor economics at the University of Arizona. He has studied the Great Depression years and said that, in light of the profound financial market troubles that are now hitting the economy, it is "amazing" that the current unemployment rate is as low as it is.
"My sense is that we are in recession territory," Fishback said. "But in terms of unemployment, it's been a pretty mild recession so far," he said.
The problem is, while job reports such as the one seen for November might not be as bad as they seem at first blush, a lot of economists think that, by the time a recovery starts, unemployment rates last seen during the downturn of the 1980s will be back. The only plus is that unemployment rates are unlikely to plumb the depths of joblessness seen during the 1930s.
"Weakness has spread from housing to Wall Street to Main Street," said UBS economists. "It is now effectively 'feeding on itself,' with job losses leading to weaker spending leading to more job losses, and so on," they said.
Sung Won Sohn, an economics professor with the Smith School at California State University, said "this unemployment rate will certainly go over 8% and could approach 9% or 10%" before it begins to improve. Adjusted for a big decline in workers who have dropped out of the labor force, the current "effective" unemployment rate is actually at 12.5%, he said.
"When a recession continues on with a lack of confidence in financial markets, it generally takes much longer to [reach] bottom and...it takes a while to recover" due to the compromised psychology of consumers, Sohn said.

Bank of Canada seen cutting rates by 50 bps Tuesday

TORONTO (Dow Jones)--The Bank of Canada will cut its overnight target rate by 50 basis points Tuesday as it grapples with a rapidly deteriorating economic outlook, according to 11 of 12 economists surveyed by Dow Jones Newswires.
Only one economist is calling for a 75-basis-point cut, but several others concede the probability of such a move is high, given the sharp decline in both domestic and global outlooks.
"Right now, we're still penciling in 50 basis and another 25 for a terminal rate of 1.50%, and it's a pencil with a big fat eraser at the end," said Michael Gregory, senior economist at BMO Capital Markets.
"In all honesty, we could see the full 75 (Tuesday) and a lower terminal rate. That's clearly the risk," he said.
The economists surveyed are at registered primary dealers in Canadian government bonds and T-bills.
News earlier Friday that Canada lost 70,600 jobs in November, considerably worse than the expected 20,000, increased the uncertainty surrounding the bank's rate decision, some economists said.
A 50-basis-point cut would bring the bellwether rate to 1.75%, its lowest level under the current system for setting rates. It had previously bottomed at 2.00%.
The bank has already cut the rate by 200 basis points from its peak level of 4.25% in late 2007. At its last policy date on Oct. 21 it cut the rate by 25 basis points.
Economists cite a rapidly deteriorating economic outlook globally, and particularly in Canada's major trading partner, the U.S., as arguing for substantial rate cut Tuesday.
Low inflation, continued credit market stress and the delay of fiscal stimulus because of the suspension of Parliament in the wake of a political power struggle all argue for a substantial easing, they said.
"The macroeconomic outlook is getting really ugly, particularly in the U.S.," said Carlos Leitao, chief economist at Laurentian Bank Securities in Montreal.
Canada's economy has held out better than many through the global slowdown, recording 1.3% annualized growth in the third quarter.

No Reason For The Bank To Wait

But economic data have weakened recently, and many believe the economy slipped into recession in the fourth quarter.
Although Canada is better positioned than many other countries, with a more stable financial system and superior economic fundamentals, continued aggressive rate easing at this juncture could help stave off sharper contraction, many economists argue.
"Here we still have room to maneuver in terms of setting rates. For the Bank of Canada there's no logical reason in waiting," said Laurentian's Leitao.
"Obviously, the downturn in the U.S economy is more protracted than we expected," added Martin Lefebvre, senior economist at Desjardins Securities in Montreal. "Inevitably, there will be some backlash to the Canadian economy, so we have lowered our forecasts for the Canadian economy, and now we are expecting a full recession to take hold.
"With inflation expectations dropping markedly in the past couple of months, with oil prices reaching below $44...there's no inflationary pressure in the pipeline, the Bank of Canada's got all the leeway it needs to lower rates and make sure we don't have a recession here," he said.
All-items inflation was 2.6% at annual rate in October, while core inflation was 1.7%.
The Bank of Canada's main policy goal is to keep inflation near the midpoint of its 1% to 3% target range. It focuses on the core rate on an ongoing, operational basis.
Stefane Marion, assistant chief economist at National Bank Financial in Montreal, expects the bank to cut by 75 basis points.
Because of the suspension of Canada's Parliament earlier this week, fiscal stimulus in the country will be delayed, arguing for deeper monetary stimulus, he said.
"With financial markets yet to normalize, I think it makes sense for the Bank of Canada to be more pre-emptive," he said.

FORECASTS FOR DEC 9 RATE MOVE AND RATE LEVEL AND END OF SECOND QUARTER OF 2009:

DEC 9 Q2 2009
BMO CAPITAL MARKETS 1.75% 1.50%
CASGRAIN & COMPANY 1.75% 1.20%
CIBC WORLD MARKETS 1.75% 1.50%
DESJARDINS GROUP 1.75% 1.00%
DEUTSCHE BANK 1.75% 1.00%
HSBC SECURITIES CANADA 1.75% 1.50%
LAURENTIAN BANK SECURITIES 1.75% 1.00%
MERRILL LYNCH CANADA 1.75% 1.00%
NATIONAL BANK OF CANADA 1.50% 1.25%
RBC FINANCIAL GROUP 1.75% 1.75%
SCOTIA CAPITAL 1.75% 1.00%
TD BANK FINANCIAL GROUP 1.75% 1.25%

US data week ahead: demand slump seen easing price data

NEW YORK (Dow Jones)--Amid signs that the U.S. recession is accelerating, economists expect that price pressures are easing quite dramatically. Slowing inflation is expected to be the biggest news coming from the data scheduled for release next week.
Import prices are expected to have fallen 5.8% in November on top of a 4.7% plunge in October, according to the median forecast of economists surveyed by Dow Jones Newswires Friday. The ongoing drop in crude-oil prices is leading the decline in prices for foreign-made goods.
Falling energy costs also are expected to be behind the 2.0% drop forecasted for the November producer-price index for all finished goods. The PPI dropped 2.8% in October. Excluding food and energy, the core PPI is expected to inch up 0.1%, after increasing 0.4% in October.
While next week's price data should bring good news to inflation hawks, retailers won't share in the joy. Massive job losses - the economy shed 1.25 million jobs in the past three months - as well as the credit squeeze and falling stock prices have forced consumers to cut back their spending.
The median forecast calls for a 2.0% drop in retail sales in November, following a 2.8% plunge in October. The projected decline is supported by the dismal reports on same-store sales and vehicle purchases. In addition, because sales data aren't adjusted for prices, part of the decline will reflect the heavy discounting retailers initiated in order to get shoppers in the door during the start of the holiday season.
Excluding cars, sales are expected also to fall 2.0% in November, after falling 2.2% in October.
DATE TIME RELEASE PERIOD CONSENSUS PREVIOUS
(ET)
Tuesday 1000 Pending Home Sales Oct -3.0% -4.6%
. Wednesday 1000 Wholesale Inventories Oct -0.2% -0.1%
. 1400 Federal Budget Nov -$171Bln -$237Bln
. Thursday 0830 Initial Jobless Claims Dec 6 520K 509K
. 0830 Trade Deficit Oct -$52.5Bln -$56.5Bln
. 0830 Import Prices Nov -5.8% -4.7%
. Friday 0830 Producer Price Index Nov -2.0% -2.8%
. --excl. food and energy Nov +0.1% +0.4%
. 0830 Retail Sales Nov -2.0% -2.8%
. --excl autos Nov -2.0% -2.2%
. 0955 Reuters/U Mich Consumer
Sentiment (preliminary) Nov 54.5 55.3*
. 1000 Business Inventories Oct -0.3% -0.2% . . *Final October reading .

Dollar to stall vs Euro in holiday season calm

NEW YORK (Dow Jones)--After several turbulent months in which currency-market volatility hit record levels, the euro and dollar will likely see some stability in the coming week and into the new year.
Year-end book-closing and a Federal Reserve meeting Dec. 15-16 will put the brakes on any significant change in the euro exchange rate versus the dollar.
In addition, the recent redemption flows that have strengthened the buck to two-year highs versus the euro as investors escaped riskier assets will slow, with traders weighing how safe the dollar actually is.
"(The) intensifying U.S. economic weakness is raising the prospect of aggressive policy and offsetting some of the safe-haven bids," said HervGoulletquer, head of fixed incomes market research at Calyon in Paris.
The euro is seen remaining next week between $1.25 and $1.28. But the dollar may begin to test to the downside its recent rangebound trading against the yen. Currency analysts expect the dollar to move between Y90.0 and Y93.0 next week.
Steve Barrow, head of G10 strategy at Standard Bank in London, said the dollar could soon break through lows struck in October and fall below Y90.0, to its lowest level since 1995.
"The market is so illiquid, it could get down to that level if enough orders are pushed through," said Barrow. "There is an absence of a developed interbank market or 'stabilizing speculators,' who add liquidity to the market."
Friday afternoon in New York, the euro was at $1.2665 from $1.2785 late Thursday, while the dollar was at Y92.07 from Y92.27, according to EBS. The euro was at Y116.55 from Y117.99, while the U.K. pound was at $1.4595 from $1.4662. The dollar was at CHF1.2245 from CHF1.1946 late Thursday.
Turnover in foreign-exchange markets traditionally tapers off in December as institutional investors remain on the sidelines during the holiday season. But most analysts agree that the December lull has a limit, particularly after the 15-year-high unemployment rate released by the U.S. government Friday.
"As much as the market is accustomed to weak U.S. economic numbers, this report is exceptional," said Nick Bennenbroek and Vassili Serebriakov, currency strategists at Well Fargo Bank in New York.
It will help keep risk aversion high and the flight-to-safety trades supported, supporting the dollar and yen, Wells Fargo said.
The yen had the lowest interest rates among the major currencies for a long time. As central banks slash rates now across the world, reducing the yield investors get by holding their currencies, traders are exiting positions back into the funding currency.
In addition to the change in interest-rate differentials, Michael Woolfolk, senior currency strategist at The Bank of New York Mellon, notes that "falling equity and commodity prices," as well as "deteriorating economic fundamentals in the U.S. and overseas," are adding to risk aversion, "thereby benefiting the dollar and yen."
Among other widely traded currencies, "the Canadian dollar remains in a downtrend," said the currency strategy team at Brow Brothers Harriman & Co. Disappointing data in the U.S and Canada, the anticipation of the announcement on Dec. 9 of a reduction in the Bank of Canada's benchmark interest rate and concerns about policy decisions after Prime Minister Stephen Harper dissolved Parliament "will continue to weigh on the currency, the BBH team stated in an email note.
The U.S. dollar is likely to test C$1.30 in coming days, it said. The greenback briefly spiked to a fresh four-year high at C$1.3008 Friday morning but fell back in subsequent trading to change hands at C$1.2951 during the afternoon session.
Key U.S. data reports out next week are the October trade balance on Thursday and November retail sales on Friday.

... seeing as it was your birthday, Dezza ;)

Thanks, Choccie. Interestingly, some of my U.S. Government aerospace clients are spending budget early right now -- something to do with a new administration on the horizon, I've been given to understand.

Oh how I love being paid in euro's

Morning all. Not really trading, but bringing this thread back to the front page.

Quite right, Helen. And where is the Mistress of this thread, pray tell?

Blimey first post of the year!
Happy New Year and good trading all :)

NEW YORK (Dow Jones)--China's yuan isn't likely to start the Year of the Ox on a bullish note, as stability has become a key theme for the country's leaders.

Moreover, the coming year won't be a propitious time for Chinese monetary authorities to continue any experimentation with diversification away from its dominant reserve currency, the U.S. dollar. Foreign-exchange policy and the yuan's rate are likely to remain essentially unaltered for some time.

In the two-week run-up to the traditional Lunar New Year Festival that marks the beginning of the Year of the Ox, the dollar is expected to remain around current levels. That trend could last until the Tiger takes over in 12 months.

The unwillingness to make changes will go beyond the mechanics of the tightly controlled yuan exchange rate. China isn't likely to sanction any changes in currency policy that would cause large fluctuations one way or the other.

This ties in well with the Year of the Ox. Of the 12 animals in the traditional Chinese zodiac, the ox is associated with steadiness and prosperity through fortitude and hard work. The ox definitely isn't a risk-taker, especially when it comes to financial issues. Right now, those seem to be perfect traits as China's economy struggles with the fallout from the global economic downturn and the credit crisis.

Stability is a bigger issue for China than most of its trading partners. Should growth flag to the point that misery begins to replace prosperity for too many of its 1.3 billion citizens, China could face the monster lurking under the beds of its top leaders - social instability.

That's the term government officials use when referring to violent protests and rioting in the streets. It's a scenario that President Hu Jintao and Premier Wen Jiabao will do everything in their power to avoid.

It's also why China won't allow the yuan to continue to appreciate versus the dollar in the near term. In the three years following its one-off devaluation and abandonment of the de facto dollar peg, the yuan rose about 20% against the U.S. currency. However, as the global slowdown began to reduce demand for Chinese exports, the government called a halt to the yuan's forward march in order to make life more bearable for the country's manufacturers.

With export growth declining and corporate profits down sharply, China's leaders can't let currency policy eat away too much of the country's competitiveness in world markets. If too many jobs are lost in the export sector, then social instability could manifest itself in a very ugly fashion.

China's overriding strategy for dealing with the global recession has implications for some of the broader strokes of currency policy as well. While the exact composition of China's reserves is secret, most analysts believe it's composed of around 65% dollars and about 20% euros, with the yen and a smattering of other currencies making up the rest.

China's reserves amounted to $1.946 trillion at the end of last year compared with $1.53 trillion in 2007. Most of the dollar reserves are invested in U.S. Treasury securities.

A persistent fear in currency markets has been the effect of China diversifying away from dollars because of the long-term slide in the U.S. currency's relative value. So far, there has been no concrete evidence of any dumping of the dollar. Instead, as China acquired new reserves, it put some of them in euros and yen. Most likely, the People's Bank of China bought euros as the single currency rose against the dollar over the past six years, but the euro has fallen back considerably since its all-time peak at just over $1.60 last summer.

But 2009 doesn't appear to be a good year for China to rock the reserve boat. Any overt move away from U.S. paper that has repercussions for U.S. bond markets would certainly damage the dollar and thereby reduce the value of China's overall reserve holdings.

Moreover, because of the credit crisis, China's export customers "are having trouble getting credit to finance purchases from Chinese companies," wrote Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., in a weekly update.

"No statistical data exist to support this conclusion," he stated, "but anecdotal evidence abounds."

Any move on China's part that would upset U.S. credit markets would indeed be counterproductive. Finally, U.S. capital markets remain the broadest and most liquid in the world. Commodity contracts continue to be priced largely in dollars. Those attractions by themselves contribute much to the dollar's status as the international reserve currency of choice.

Everything considered, Chinese currency policy, as well as the yuan's exchange rate, will endeavor to stay calm, steady and patient, as befits the Year of the Ox.

NEW YORK (Dow Jones)--The euro extended its slide against the dollar and yen Tuesday afternoon as risk appetite remained weak.

The euro fell to fresh five-week lows of $1.3140 and Y117.16, extending its drop since the start of the new year.

"It's really a reflection of lower risk appetite," said Vassili Serebriakov, a currency strategist at Wells Fargo in New York.

The European Central Bank's Governing Council meets on Thursday, and traders are wary of a potentially larger-than-expected rate cut. Investors failed to boost the euro overnight after Germany announced a second, EUR50 billion fiscal stimulus plan. One reason: Standard & Poor's threatened to downgrade the sovereign credit ratings of Portugal on Tuesday, and Spain and Greece in the days before.

"A downgrade at this point, when governments are looking to tap markets for significant financing, will make measures more costly in these economies and place more upwards pressure on interest rates at a point in time when they need to be moving lower," said Sacha Tihanyi, a currency strategist at Scotia Capital in Toronto. He said Greece may only remain in the "A" range due to the boost it receives from euro-zone membership.

Tuesday afternoon in New York, the euro was at $1.3191, down from $1.3371 late Monday, and the dollar was at Y89.16, little changed from Y89.12, according to EBS. The euro was at Y117.61, down from Y119.15, and the U.K. pound was at $1.4494, well below $1.4820. The dollar was at CHF1.1188, up from CHF1.1145 late Monday.

In general, the dollar and yen usually benefit during heightened periods of risk aversion, as both are considered safe-haven currencies.

A speech by U.S. Federal Reserve Chairman Ben Bernanke weighed down on sentiment. He said President-elect Barack Obama's administration and Congress will need to take more steps to revive the ailing U.S. economy. Bernanke said the government may need to provide more capital injections to financial firms to help stabilize the markets considering the worsening prospects for the economy.

The dollar also rallied Tuesday after the Commerce Department reported the U.S. trade deficit showed the greatest contraction in 12 years during November.

The U.S. deficit in international trade of goods and services plunged by 28.7% to $40.44 billion, compared with economists' estimates for a $51 billion shortfall in November.

A weaker dollar is often cited as a prerequisite for a contraction in the U.S. deficit. However, given the dollar's resilience at the end of 2008, this data report shows that dropping oil prices and falling imports have been the reason for the latest improvement, said Tom Fitzpatrick, global head of currency strategy at Citigroup in New York.

It "takes away a little of the focus from dollar weakness as a catalyst," said Fitzpatrick.

test

Economic Calendar Powered by Forex Pros

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Economic Calendar Powered by Forex Pros

New toys, Hiltops?
Very smart :)

The jury's out on that, Chocopops. I was contemplating replacing the DailyFX calendar in the header.

There's not the same noise with this calendar but it's not as comprehensive. What do people think?

The calendar itself is certainly simpler to navigate.
How about shortening the DailyFX window and sticking the Forex Pro calendar underneath?

NEW YORK (Dow Jones)-- The euro will fall versus the dollar next week as investors flee riskier assets again due to continued financial-market risk and despite government aid packages.

The common currency advanced versus the dollar Friday, along with other currencies that typically gain when market sentiment turns up, after the U.S. government announced an aid package for Bank of America Corp. (BAC)and the Senate voted to release more funds from the Troubled Asset Relief Program.

But market analysts say that cheer will be fleeting.

"A particular concern is that government capital injections do not address the core problem of erosion of asset quality on bank balance sheets, which in turn impedes their ability to lend," said David Woo, global head of foreign exchange strategy at Barclays Capital in London.

Euro zone data scheduled for release next week will add momentum to the euro selling.

Germany's ZEW business sentiment current-situation index is expected to deteriorate. The flash releases of the January euro-zone purchasing managers indexes for both the manufacturing and service sectors are expected to decline. French consumer spending numbers for December are also expected to drop, as is French industrial sentiment.

While recent data in the U.S. have also disappointed, the euro has been exceptionally sensitive to the perception of risk recently.

Barclays Woo found the euro has been particularly sensitive to short-term interest-rate movements and increasingly sensitive to swings in stock markets.

A "10% decline in the MSCI World (stocks index) has been associated with a 1% decline in the euro versus dollar in the past year but a 3% decline in euro versus dollar in the past 50 days," said Woo. "This last development suggests that the dollar's supposed safe-haven status remains intact."

He notes that the options market is forecasting a 38% chance that the euro will trade below $1.20 and a 13% chance that it will be below $1.10 in three months.

Next week, analysts expect the euro to start off carrying through on Friday's rally, heading for near $1.34, before declining back toward the $1.31-area.

Friday afternoon in New York, the euro was at $1.3251, compared with $1.3145 late Thursday, while the dollar was at Y90.35 from Y89.71. The euro was at Y119.85 from Y118.00. The U.K. pound was at $1.4691 from $1.4651, while the dollar was at CHF1.1173 from CHF1.1225 late Thursday.

Meanwhile, the dollar is expected to trade between Y92.0 and Y89.0, as risk appetite continues to wane during the week.

Traders and domestic Japanese investors who used the yen to buy other assets when the global economy was healthier reverse those bets during periods of market uncertainty. This deleveraging process drove the yen higher in 2008 and has still to run its course, analysts said.

The "rapidly deteriorating Japanese economy encourages local investors to retrench further. The yen should see more appreciation in the weeks ahead," said Ned Rumpeltin, a currency strategist in London at Morgan Stanley, which has bet against the euro versus the yen.

The Bank of Japan meets next week on Thursday to decide on its main lending rate, reduced last month to 0.10%. On Friday, the BOJ downgraded its core economic assessment of the nation's regional economies for the second straight quarter. With rates already so low, many analyst say there is little room for the BOJ to cut again to answer these concerns. Instead, the bank is expected to outline other strategies to pump cash into the domestic economy.

Investment Biker Jim Rogers urges sell Sterling,get cash out of Britain!

It's hard to disagree with him Falco!

From another site, late last night:

Markets are putting in a massive reversal today, led by the dollar index which sky-rocket to its highest levels since early December only to reverse course and put in a low lower than yesterday on the daily charts, an outside day to technicians. Coming at a top, outside days can be especially cataclysmic. Note, there is is a gap on the USD index chart that could be filled in tonight, taking the pair from around 85.98 to 85.50 if filled.

EUR/USD, cable, EUR/JPYtheyve all seen massive shifts in fortune this afternoon as have many of the asset markets. With any luck, risk aversion will melt away and well all have retirement accounts worth owning again. Hope and change!