The currency markets were dominated by EURUSD and USDJPY rallies in the Asian session, while the risk sentiment remained mitigated. The Chinese manufacturing PMI remained in the expansion zone, yet fell short of the market expectations. In Japan, the unemployment saw a slight increase, and the vehicle sales slumped by a heavy 12.9%. As the Japan EconMin Amari and FinMin Aso think that there is no need to revise the BoJ law now, the PM Abe is narrowing down the candidates for the next BoJ Governor. Today, the eyes are on the US nonfarm payrolls, either to give a supportive voice to the current trend in weaker JPY and stronger EUR, either to trigger an appropriate pullback. Despite the disappointing GDP figures released earlier in the week, the NFP figures are seen to 165K, higher than 155K in December reading. While the negative GDP growth is believed to be due to USD50bn cut in government's defense spending, the optimism on US job market keeps tight on the market place. USDJPY still not tired The ever-weaker Yen lost its surprising effect since the eyes target 95.00 zone for USDJPY. Despite the growing tensions between the government and the BoJ, the mediocre economic data gives support to Abe's further easing policy. In our view, Abe should be comfortable to let the Yen down to 100 zone, yet the positive momentum to bring the currency to its next resistance is muted, ahead of NFP figures. EURUSD rallies to 1.3657 The single currency extended the week's gains versus all of its major counterparts except SEK. EURUSD left behind the 1.3590 resistance and advanced over 1.3650. The EUR bull got support from IMF stating that Cyprus has been able to meet its financial needs through domestic borrowing, and expects to meet its obligations. The EURUSD is overbought at 76.2% and the pair still trades over its UBB. EUR-positive bias offset the technicals, as the economic data push the EUR and EUR crosses higher. The Euro-Zone country PMIs came in better-than-expected for Spain, Italy and Germany, yet unchanged in France. The Euro-Zone PMI saw its contraction narrowing to 47.9, (from the 47.5) in January, while the unemployment remained stable at 11.7%. The spread between the 10-year Spanish vs. German bonds widened, and EURJPY hit 125.97 in reaction to the supportive data. On the GBP deck, the EURGBP rushed to 0.86482 (its highest level since Nov 2011), as the UK PMI weakened to 50.8 from 51.4 reading in December. Happy Swissy The Swiss PMI crossed over 50.0, meaning that the Swiss manufacturing expanded in January and the expansion was better-than-expected. While EURCHF remained well supported above 1.2330 zone yesterday, the good news gave a rapid boost to Swiss franc, pulling the quote down to intra-day lows. USDCHF followed by a sharp move to 0.9041 support, yet failed to break down at this first attempt. The main driver for the franc appreciation is the flight to security. We believe that there is room for further franc appreciation if the markets get disappointed by NFP figures in the afternoon.

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