The dollar eased further versus the euro and sterling following another round of weak US economic data, falling to 1.4708 and 1.9722, respectively. A key indicator of consumer confidence fell to its lowest level in 16-years with the University of Michigan preliminary sentiment survey dropping to 69.6, versus 78.4 from January. Industrial output in January crept up marginally to 0.1% versus a flat reading in December. Meanwhile, capacity utilization also increased slightly to 81.5% from 81.4% a month earlier. Also released was the December net capital flows (TIC), which more than halved to $60.4 billion, versus a revised $150.8 billion a month prior.

The string of soft US data reinforces fears that the economy is headed toward a recession, thereby prompting the Fed to aggressively ease rates over the coming months. Fed funds futures contracts reflected a 60% probability for the FOMC to cut rates by 50-basis points to 2.50% at the next policy setting meeting in March.

BoJ Unchanged, Yen Slumps

The Bank of Japan voted unanimously to leave monetary policy unchanged when it announced its decision last night. Additional Bank Governor Fukui tempered expectations saying inflationary risks to the economy remain low. The yen fell to 108.30 against the dollar and 158.87 versus the euro. We maintain our outlook for strength in the yen as global risk aversion remains a key factor in the first half of this year.

USDJPY hovers near 107.80, with support starting at 107.50, followed by 107.20 and 107. Subsequent floors are eyed at 106.60, backed by 106.40 and 106. On the upside, resistance is eyed at 108, followed by 108.30 and 108.65. Additional resistance is seen at 109, backed by 109.50 and 109.80.