USD/CAD

Record Rise Bolsters CAD: Lending to loonie bias over the session, a wider trade surplus spurred by higher energy prices sparked bullish fever.  The current account surplus, which was expected to climb to C$12.4, vaulted to a record C$13.3 billion for the quarter.  Now with housing demand still strong in the region, higher wage earnings and a record trade surplus, sentiment now confirms a rate hike of 25 basis points come March 7th when monetary officials next meet.  This is contrary to current inflationary measures as the core figure still resides well below the central bank target of 2 percent.  Nonetheless, officials will continue to remain preemptive as the economy is expected to grow at a 2.6 percent pace over the next year, lending plenty of power the Canadian dollar.  Additionally lending to the underlying currency will be oil valuations.  In the near term, although there has been a pullback from Thursday's run, prices continue to remain above the newly established low of $50 a barrel.  Any increases from there should still lift the major currency against its counters

Rumorville: Dollar bids currently at 1.1415 and even lower at 1.1375/80 are keeping Canadian favoritism at bay momentarily as stops are recognized below a 1.1370 barrier option.  Offers above are keeping the underlying suppressed at 1.1440/50 and higher at 1.1490.

AUD/JPY

Thinner Aussie Growth Ahead: Today's Australian company profit report lent to near term downside in the cross, coupled with rising sentiment that Japanese monetary officials may have increasing cooperation with a tighter policy.  According to the Australian Bureau of Statistics, gross operating profits gained only slightly by 0.8 percent from the third quarter.  Rising 3.9 percent in the third, consensus expected a 2.8 percent rise.  Although corporate parties continue to remain profitable, the thin margin lends to more than concern over the viability of firms.  The report included details suggesting that consumer demand may drop further along with earlier indications that consumer spending and home building are slowing.  Subsequently, this is now lowering estimates of overall growth in the economy with consensus aiming for a slight increase above the 0.2 percent seen in the third quarter.  With lower growth signals, central bankers are less likely to consider rate hikes at this point even as inflationary pressures creep, lending to plenty of downside in the underlying.  Separately, with expectations of a potential increase in benchmark Japanese rates, we are seeing some considerable unwinding of previously en vogue carry trades.  

Rumorville: Heavy offers at 116.30 with stops above at 116.40 and 116.50 are keeping the major leg of Yen lower.  Considerable selling at 116.50/60 should keep bears in the picture as continued pressure is exerted on retraces.  Noted is option protection at 115.50 with more barriers at 115.00, 114.75 and 114.50.

EUR/JPY

Now Koizumi Sparks Rally: With no substantial economic data on the front, the EURJPY currency pair suffered under positive sentiment, slowly but surely, mounting in favor of the yen.  Bolstering earlier comments by monetary policy officials, Prime Minister Junichiro Koizumi stated that the bank should gauge the need for the amount of cash to be placed into the economy.  This confirmed to traders that despite earlier differences, government officials will be in line with central bankers when they decide to raise interest rates.  Now with nothing but further economic data in preventing the aforementioned, market sentiment is becoming increasingly convinced that rates should be forthcoming in the near term.  As a result, one of the many carry trade possibilities in recent years, EURJPY positions are being pared back as rate spreads are expected to narrow.  However, the run may be temporary as manufacturing data is expected to rise in the month of February and is slated for release on Wednesday.  Until then, further momentum looks to precipitate as the pair has lost approximately 400 pips over three sessions. 

Rumorville: Offers at 137.90/138 should keep the near term action range bound as we head into the Asian session.  Offers continue to abound at 138.20 while bids begin to enter at the lower trendline around 137.20 all the way down to the figure.  Large stops are noted at 136.90.

Richard Lee is a Currency Strategist at FXCM.