The dollar and yen lost ground in N.Y. trade on Thursday, despite the softer risk backdrop. U.S. data was mixed, with higher jobless claims countered by strong income and Chicago ISM data and a tame ECI outcome. Position adjustments were part of the story, as the market looked toward Friday's January U.S. employment report. EUR-USD made a modest attempt to test 1.3600, but came up short on the back of barrier defense. USD-JPY meanwhile, rallied over 91.40, posting a new trend high in the process. Aside from the jobs report, Friday also brings January manufacturing ISM, construction spending, auto sales, and Michigan sentiment index.

[EUR, USD]
EUR-USD opened near 1.3550 and was supported through mid morning by option expires at the level. Later, the euro took a peek at the 1.3600 level, though was smacked back down as it approached 1.3595. Barrier defense, along with standing offers at the figure stopped gains in their tracks, resulting in a pullback under 1.3670. Afternoon trade slowed into month end, and Friday's U.S. jobs report. EUR-JPY was boosted by a Middle Eastern account, which helped it up from 123.25 to just short of 124.20.

[USD, JPY]
USD-JPY was tied up early on by massive option expiries which rolled off at10:00ET. There were well touted 90.00 to 91.50 strikes in excess of USD 10 bln at 90.00, 90.50, 91.00 and 91.50. Gamma demand was evident from 90.80 at the European open and option related selling is likely from 91.20 up to barriers at 91.50. As well as the large plain vanilla expiries that are maturing some of the 91.50 knock outs are rolling off and could provide the potential for more movement from Friday. Global manufacturing PMI data is due for release, along with U.S. NFP. Risk traders that have enjoyed the benefits of yen-funded carry will look for more extended yen weakness. As a reminder, Japanese officials have said USD-JPY at 95.00 or 100.00 is no problem. USD-JPY peaked just over 91.40 in Afternoon N.Y. trade.

[GBP, USD]
Cable Started the N.Y. session just under 1.5800, though headed back over 1.5830 early on speculative demand. There was talk that over the next fews days there may be sizeable demand to buy Cable related to a large dividend payment, which fueled buying interest since the European open. It has been relatively well supported apart from a brief move lower on a U.K. clearer sell order related to the London fix. Sterling kept its bid tone through the day, peaking near 1.5875. However, due to the U.K. outlook we still see macro funds more likely to sell sterling into strength than position for any significant upside. Most bank research notes have forecast much weaker levels this year and Cable may struggle to sustain moves into 1.6200 or above in the medium to long term.

[USD, CHF]
EUR-CHF benefited from bargain hunting after the correction seen since the start of the week. After big swissy inflows went through EUR-CHF bottomed out just under 1.2340 and rallied back to 1.2385 after it moved back over 1.2350. The interest helped USD-CHF turn away from key support at 0.9080. However, the breakdown from over 0.9250 this week is a bearish lead and if risk appetite can improve into the weekend then further losses are likely. Friday is big day on the data front, with global manufacturing PMI data due, along with the U.S. NFP release. Intra-day accounts that are trading off order flow cite EUR-CHF bids at 1.2320 to 1.2300 and offers are noted in larger size from the 1.2380 region.

[USD, CAD]
USD-CAD dipped briefly under 1.0005 after the stronger Canadian November GDP outcome, though the move was likely tempered by the jump in U.S. jobless claims, and soft Canadian IPPI data. USD-CAD recovered briefly over 1.0015, as strong buying interest is seen into the parity mark. The 1.0000 level eventually gave way, and as standing bides were pulled, the pushed through stops at 0.9990-80, on its ways to lows near 0.9965. Dealers again noted decent bidding interest return into the lows from shorter term interest, and reported another band of corporate buying from 0.9950.