After falling for 3 straight months, we have finally seen a recovery in pending home sales. Falling home prices and lower interest rates have boosted the number of Americans signing contracts to purchase homes by 6.3 percent in the month of December. Sales in the Northeast and West continued to decline, but bargain hunters are sweeping in to buy homes in the Midwest and South, where prices have declined the most over the past few months. Unfortunately the rebound in pending home sales and manufacturing ISM reflect only mild improvements for a depressed economy.

Stimulus packages Lift Currencies

However stimulus packages are causing alot of cheer in the currency market today. The Australian dollar is up more than 2 percent after the government announced a package worth up to 4% of GDP or AUD 42 billion. The central bank also cut interest rates to a record low of 3.25 percent. The Japanese Yen received some support after the Bank of Japan announced that they will be purchasing JPY 1 trillion of securities from banks.

US investors are waiting for their own stimulus package but that may not be delivered for another few weeks. The full Senate is set to vote tomorrow on their version of the package and if it diverges significantly from the House's version and it will, the package will delayed even further. A plan will not be on President Obama's desk to sign until mid Feb at the earliest. Therefore any recovery in risk aversion today should be fleeting especially ahead of non-farm payrolls on Friday.

Will Politics Trump Economics?

Stimulus packages are causing a lot of cheer in the currency market today. The Australian dollar is up close to 2 percent after the government announced a package worth up to 4% of GDP or AUD 42 billion. The central bank also cut interest rates to a record low of 3.25 percent. The Japanese Yen received some support after the Bank of Japan announced that they will be purchasing JPY 1 trillion of securities from banks.

US investors are waiting on their own stimulus package but that may not be delivered for another few weeks. The full Senate is set to vote tomorrow on their version of the package and if it diverges significantly from the House’s version and it will, the package will delayed even further. A plan will not be on President Obama’s desk to sign until mid Feb at the earliest. This is what the market expects and if the outcome is any otherwise - such as a swift passing of the stimulus package, then politics could easily trump economics.

But the greater likelihood is for the recovery in risk aversion today to be fleeting especially ahead of non-farm payrolls on Friday.

Kathy Lien is Director of Currency Research at GFT, and runs KathyLien.com.