Risk Aversion Declines As US Enters Great Recession

The dollar traded mixed on Friday after US nonfarm payrolls plunged the most since 1974 and mortgage delinquencies and foreclosures rose the most since recordkeeping began 29 years ago. The current US economic crisis is not the same as the Great Depression but could be called the Great Recession as it is already a year-old recession without any signs of abating. The USD/JPY rose, after successfully testing the 92-area support, as US equities rallied despite today's gloomy economic data. Equity gains on bad news bode well for stocks and risk appetite, possibly indicating a bottom in the USD/JPY. The euro fell as Germany's factory orders dropped more than expected. Sterling rose after testing the 1.45-handle support. The Australian dollar reversed earlier losses on increased risk appetite despite a larger than 4% drop in the RJ/CRB commodity index.

The USD/CAD initially gained on Canada's November employment dropping the most since 1982 but later fell on increased risk appetite. The pair successfully tested the important 1.30-resistance for a third time since October. This could be a bearish sign, but the trend is still up. The Canadian dollar has been pressured by collapsing commodity prices, economic contraction and political crisis in Ottawa. There are support from the diagonal support line in the 1.25-area and strong support in the 1.15. If the 1.30 resistance is broken, the pair will move higher. However, we expect the pair to move sideways.