FunnyMentals indeed, we started the week with a flurry of data that after all things being said and done, finds us mixed for the USD pairs and curiously firmer among the JPY crosses. While there should be nothing unusual about this what I find to be a ‘funnymental’ here was that sustained movement did not come from the dollar pairs where releases turned out mostly inline with the consensus expectations (confirming that US manufacturing is now at a contraction). But with the JPY pairs, extending an earlier rally though this appears to be more of a limited unwinding from last weeks massive shorts.

The more interesting results actually came out of Canada, here we saw month-on-month GDP for December dropping -0.7% well short of the -0.2% consensus and a first since August of 2006. These are numbers that affirm the idea that a strong loonie and Canadian growth would not be both sustainable. Plain as that statement may sound we still have to deal with the fact that the loonie is a commodity currency, with oil pretty much seeing new highs almost constantly simply dumping the loonie is an exercise of bravery bordering on the foolhardy. For now I will continue to look for a build up of ‘fundies’ reinforcing the idea of a weakening Canadian economy and then and only then would I start to discount the currency’s seeming strength.

Turning to the charts yesterdays data and price action has me more and more convinced that some pull back is still needed for both Euro and Cable vis-à-vis the US dollar. Sure we saw mostly inline numbers for the manufacturing surveys but in the end a contraction is still a contraction and with ISM Manufacturing at 48.3 (a second bust over the last three months) one would have expected that knee jerk reactions to the top side would have been sustainable considering their own 52.3 and 51.3 reads.

Particularly in the Euro’s case, the fact that after fresh highs we saw a close right around where we started the day does suggest that despite all the bullish talk going one no one is willing put money where there mouths are. Where are the buy stops above 1.5240? With the apparent attempt to run the price area ending for naught we now have a chart that is more and more looking ripe for a pull back. Add to that what has long been an over bought daily chart all I need now is some for of catalyst, be it some positive new out of the US, poor Eurozone results or simply a close below 1.5160 in the daily charts. Medium term though I continue to be bullish for EURUSD with targets at the 1.5500 area, just need that pull back for a better entry.

At this point we take a look at what’s ahead and we have Australian policy rate decisions at 0330GMT where market is already pricing in a another 25bps move. Thing could get tricky ahead for the Aussy pairs given the surprisingly flat Retail Sales numbers for January and a close read of the accompanying statement would be needed. Any hints that this latest move could be the last may just be the trigger needed to break that long trend line from January 22 lows which could set us up for a pull back to the 0.9100 area right around your 38.2 fib retracement for the rally.