Prior to this weekend, the commodity currencies and the Euro benefited from waning risk aversion while the safe-haven currencies including the Japanese yen, the Swiss franc, and the U.S. dollar, strengthened from its waxing.

This created some contraindicative trading signals, such as USD rising after its latest negative GDP announcement, and EUR completely ignoring the recent surprising uptick in the ZEW confidence reading. But after one got the hang of trading risk aversion rather than technicals or fundamentals, the pattern was reasonably steady and offered forex traders some consistency within an otherwise choppy and difficult market.

However, this week has seen some changes in the way the “big money” investors are viewing and responding to risk, and therefore in the ways in which the market may heed the call of its aversion.

Firstly, the 4Q2008 GDP measure for Japan printed far worse than market expectations. Although the forex trading market has not recently responded appropriately to fundamental announcements, a 12.7% annualised contraction shocked even this cynical market to its core.

Secondly, tensions are heightening regarding the exposure of European banks to emerging credit markets, which have toxic potential from falling exports, depreciating currencies, and contracting economies. The possibility of ratings downgrades by Moody’s and other agencies has focused investor awareness on this matter to the point that dealer chatter covered little else over the weekend just past, and the level of Russian central bank reserve holdings is of major concern.

Thirdly, while the G-7 financial meeting wasn’t expected to solve the world’s problems, markets would have been glad of a hint. But like the U.S. bank rescue plan released the previous week, no details were forthcoming and markets of every stripe are becoming tired of wondering. The lack of settled details for the US auto industry has also not helped.

The results of this mélange of lousy news began to be noticed at the start of Tuesday’s Asian session; however, forex traders are advised to exercise extreme caution regarding these new trading patterns until they have been confirmed.

1.    JPY may be losing its status as premier safe-haven currency to USD. Although the initial reaction to Japan’s GDP release was tepid, USD/JPY has since renewed its assault on resistance at 94.50 and there is rising dealer interest for call options with a strike price of 100.00 within three months.

2.    With pressure building to the upside within USD/JPY and CHF/JPY (above 79.50), it’s interesting to note the downside pressure building within AUD/JPY and EUR/JPY.

3.    Crude oil may be losing what little of its lustre remains while gold appears to be regaining it. Front-month crude remains below US $35 per barrel while gold has rise to $970 per ounce following its breakout above a narrowing consolidation triangle, best seen on four-hour charts (below):

4.    EUR may be decoupling from its normal satellites, the pound sterling and the Swiss franc, although the extent of that decoupling is not yet known. Forex traders are advised that correlation between EUR/USD, GBP/USD, and USD/CHF has diminished recently and may do so further as EUR and possibly CHF weaken against USD while GBP holds what ground remains to it.