• USD: Mixed, nonfarm payrolls unexpectedly declined in December
• JPY: Higher, Japan's PM rebukes his new finance ministers weak JPY comments
• EUR: Mixed, EU unemployment rises to an 11 year high of 10%
• GBP: Higher, UK producer prices surge, election polls show the Tories gaining
• CAD and AUD: AUD higher & CAD lower, Canada unexpectedly lost jobs in December

Overview
The USD traded mixed ahead of today's US employment report with JPY supported by report that Japan's PM does not want the government to make comments on FX and GBP supported by report of a surge in UK producer prices. GBP was also supported by UK election polls which indicate the Tories are headed for a majority in this year's general election. EUR traded lower in reaction to report that EU unemployment rose to 11 year high at 10%. Commodity currencies traded mixed with CAD pressured by report of an unexpected loss of jobs in December. There was limited reaction to a statement from China's commerce minister that there may be flexibility in the Yuan if the USD continues to appreciate. US December unemployment rate was unchanged and nonfarm payrolls unexpectedly declined. The USD traded lower after the release of the disappointing nonfarm payrolls report as many analysts had expected nonfarm payrolls to turn positive in December. Feds Bullard says jobs need to improve for stimulus exit. Part of today's unexpected drop in nonfarm reflects a sharp drop in construction jobs. The drop in construction jobs is related to bad weather through many parts of the US during December. In addition nonfarm payrolls were revised to 4k in November. November was the first positive reading for nfp in 23 months. Focus turns to next weeks release of US retail sales and ECB policy meeting.  

Today's US data:
December nonfarm payrolls fell by 85k, an 8k decline was expected. The December unemployment rate was unchanged at 10%, a reading of 10.1% was expected. November wholesale inventories rose 1.5%.

Upcoming US data:
Next week's US economic calendar includes the January 12th release of November trade balance expected at -34.30bln compared to -32.94bln last month. On January 13th December Treasury budget will be released expected at -105bln compared to -51.75bln last month. On January 14th December import prices will be released expected at 0.1% compared to 1.7% last month. Also on January 14th initial jobless claims for week ending 01/09, December retail sales and November business inventories will be released. Jobless claims are expected at 430k compared to 434k last week. December retail sales are expected to rise by 0.2% compared to 1.3% last month, ex. autos retail sales are expected to rise by 0.3%. November business inventories are expected at 0.1% compared to 0.2% last month. On January 15th December CPI, December industrial production, capacity utilization January Empire State Manufacturing and January Michigan consumer sentiment will be released. CPI is expected at 0.2% compared to 0.4% last month. Industrial production is expected at 0.4% compared to 0.8% last month and capacity use is expected at 71.6 compared to 71.3 last month. Empire manufacturing index expected at 9.45 compared to 2.55 last month and Michigan sentiment is expected at 73 compared to 72.5 last month.

JPY
JPY traded higher supported by Japan's PM rebuke of comments from Japan's new Finance Minister Kan that he favored a weaker JPY. Japan's PM Hatoyama said that the government should not comment on FX and that FX stability is desirable. JPY traded at a four-month low Thursday pressured by a statement from Kan that he would welcome a weaker currency.  Japan's Finance Minister Fujii resigned Wednesday because of health concerns. He was replaced by Naoto Kan. When Fujii became Japan's finance minister in September he made a statement that a strong JPY would be in the best interest of Japan. His comments sent JPY sharply higher and he spent many months backpedaling on his strong JPY comments as the new Japanese government feared that a stronger JPY would hurt the Japanese economic recovery. Just the opposite has emerged with Japan's new Finance Minister Kan. Kan said that he favored a weak JPY. After Kan was called on the carpet by Japan's PM he will likely be backpedaling from his JPY comments as well. JPY rallied to the day's highs after the release of an unexpected decline in US December nonfarm payrolls. There was little reaction to report that Japan's November leading index rose by 1.8% a 2.2% rise was expected.

Next week's Japanese economic calendar includes the January 12th release of November current account expected at ¥1.110trln compared to ¥1.40trln last month. December money supply will also be released on the 12th expected unchanged at 0.1%. On January 14th CGPI for December will be released expected at 0.1% compared to 0.2% last month along with November machinery orders. The machinery orders are expected to rise by 8.5% compared to -4.5% last month.

Key technical levels to watch in USD/JPY include support at 91.53 the January 6th low with resistance at 93.67 the January 8th high.

EUR
EUR traded lower in overseas trade pressured by report that EU unemployment rose to 11 year high at 10%. EU reversed to trade higher in US session supported by report of an unexpected drop in US nonfarm payrolls. EUR gains were limited by weaker equity markets. EU Q3 GDP was unchanged at 0.4% and German industry output rose by 0.7%. Today's EU economic data suggests that the worst may not be over in Europe and the ECB will likely maintain steady policy for the foreseeable future. The ECB will hold a policy meeting next Thursday. The worsening of the EU employment outlook suggests that the EU recovery will be weak. There was one bright spot in today's German data which showed that the German trade surplus rose last month as exports were up 1.6%. EU recovery remains highly dependent on export growth as domestic conditions show continuing labor market weakness and tight credit conditions. Concern about EU growth prospects and sovereign debt risks should limit today's EUR rebound.

Next week's European calendar includes January 13th release of EU November industrial production expected at -0.3% compared to -0.6% last month. On January 14th German December CPI will be released expected unchanged at -0.1%. ECB policy meeting will be held on January 14th and no rate change is expected. On January 15th EU December CPI November trade balance will be released.

The technical outlook for the EUR is mixed as the EUR rises above 1.4400. Expect EUR support at 1.4257 the January 4th low with resistance at 1.4485 the January 5th high.

 
GBP
GBP traded higher supported by report of rising UK producer prices and an UK election poll which shows the Tories may gain control of the UK Parliament. UK December producer prices rose by 0 5% and input prices rose by 0.1%. The core producer price rate rose by 0.7%. The rise in UK producer prices is further confirmation that inflation pressures may be building. Rising inflationary pressures in the UK may encourage the BOE to pause and its asset purchase plan. The BOE elected Thursday to hold a policy level and maintain the current level of asset purchases. The BOE is expected to wait for the February quarterly inflation report before they determine whether any shift in monetary policy for the level of asset purchases is warranted. UK November CPI rose to 1.9%. The BOE's inflation target is 2%. BOE officials have indicated that they expect inflationary pressures to rise and then fall back below target by the end of 2010. If UK inflation data continues to confirm rising price pressures and BOE officials may shift to a more hawkish policy bias. The UK will hold a general election sometime between March and June 3rd. The election is seen as crucial for the outlook for the UK budget and UK sovereign debt rating. The latest UK election polls show that the Tories are heading for a majority control of parliament in the general election. If the polls are correct there may be less fear about the UK government's willingness to address its deficit. Earlier polls had indicated the possibility of a hung parliament which would make it less likely that a coalition government would tackle the deficit. GBP remains vulnerable to concern about UK debt outlook and election uncertainty. Analysts at BNP forecast that GBP will fall 12% versus the USD in 2010 because of deteriorating UK public finances and concern about UK sovereign debt rating. BNP's GBP/USD year-end forecast is 1.4000. UK election campaign rhetoric is expected to focus on UK budget and credit rating risk.

Next week's UK economic calendar includes the January 12th release of December RIC's house prices and November trade balance. On January 13th of November industrial production is due for release along with NIESR GDP estimate for December.

The technical outlook for GBP is mixed as GBP rallies above 1.6000. Expect near-term support at 1.5900 the January 7th low with resistance at 1.6155 the January 5th high.

CAD
CAD traded mixed with early weakness attributed to report an unexpected decline in Canada's employment growth. Canada shed 2,600 jobs in December and the unemployment rate was unchanged at 8.5%. Employment growth was expected at 20k. In November Canada unexpectedly created 79k new jobs. The November data helps to limit the impact of today's weaker than expected Canadian employment report. CAD drifted higher after the release of an unexpected decline in US nonfarm payrolls as the report will force the Fed to maintain low yields. CAD has been benefiting from speculation of a possible shift in BOC monetary policy outlook as Canadian inflationary pressures may be building. Wednesday, Canada reported strong rise in producer prices. Continued maintaining of low BOC yields is contingent on inflation remaining in check. Rising Canadian price pressures may encourage speculation of an earlier shift in BOC policy bias.

Next week's Canadian economic calendar includes the 11th release of November building permits and the January 12th release of November New Housing Price Index.

The technical outlook for CAD is positive as USD/CAD trades below 1.0400. Look for near-term support at 1.0297 the January 7th low with resistance at 1.0517 the January 4th high.

AUD
AUD edged higher in reaction to report of weaker than expected US nonfarm payrolls. The unexpected drop in US nonfarm payrolls will keep Fed yields at low levels for an extended period. Yield differential continues to work in favor of the AUD as RBA rate hike speculation is back on the radar screen. AUD is also supported by report that December construction activity index rose by 1.7 to 49.3. This week's Australian economic data appears to confirm that the Australian domestic economy is weathering recent rate hikes by the RBA. Australia reported strong retail sales rise in November and improvement and its trade deficit. In addition building approvals and vehicle sales were also strong last month. At the end of the year AUD came under significant pressure partly due to diminished speculation that the RBA would hike rates in February. This week's strong Australian economic data encourages speculation that the RBA may hike rates in February. Financial futures are pricing the odds of a February RBA rate hike at 50/50. 

Next week's Australian calendar includes the January 11th release of ANZ job ads expected at 4% compared to 5.2% last month. On January 12th November housing finance plan would be released expected at 2% compared to -1.5% last month. On January 14th December unemployment will be released the unemployment rate is expected to fall by 0.1% to 5.6% from 5.7% with employment growth at 20k compared to 31.2k is last month.

The technical outlook for the AUD is positive as the AUD trades above 9000. Expect AUD support at 9092 the January 5th low with resistance at 9295 the December 4th high.