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The USD and the JPY have strengthened overnight after disappointing earnings reports from Apple after the close of the US equity markets have traders leaving the risk currencies and heading for the safety of the dollar and the yen.  “Risk on, risk off”, and today looks like a “risk off” day.

The USD/JPY has come off its highs from yesterday and it will be interesting to watch how the market treats the currency pair this afternoon.  On the one hand, there is the aversion to risk and the move towards safety.  But, there also is the expectation that the Bank of Japan will ease next week, weakening the JPY.  CPI numbers released overnight show that Japan is still in deflation, although the numbers were better than expected.  With these numbers showing that Japan is still in deflation, the odds of expanded monetary stimulus at the meeting on October 30 remain high.

The EUR had a relatively quiet trading range overnight and is currently trading in the 1.2930’s as traders digest softer than expected confidence numbers from Italy and France, as well as a new record high in Spanish unemployment.  While still well within the 1.2800 – 1.3170 trading range, the EUR seems to have resumed its downward trend, which means a test of 1.2900 is expected.

Most technical analysts are looking for the downside test now, but caution that the markets remain fragile and over-selling could result in “snap-back” buying on any “pro-EUR” news flash.  Support below 1.2900 is at 1.2860 and 1.2820.  Resistance remains above 1.3000 at 1.3025.

Yesterday afternoon, rumors came out that ratings agency Fitch was going to downgrade its rating on US debts.  There was no comment from Fitch, except to refer any inquiries to its July statement that said its US credit rating will unlikely change before late 2013.  Based on the movement of the market, traders barely gave this rumor a second look.

Equity markets in the US look to lead the currency markets today.  It wasn’t only Apple that posted disappointed earnings.  Canon led the Tokyo market lower after it reduced forecasts on sales and profits.  Samsung fell on the Seoul exchange despite reporting a profit that beat estimates.

Most Asian and European equity markets have traded lower overnight and early this morning, while the DOW Futures are much lower at 5:00 am indicating a sell off at the opening of the US equity markets.