Key News   
• China hiked rates by 27 basis points.
• Bank of Japan Governor Toshihiko Fukui will signal policy makers are in no hurry to raise interest rates. (Bloomberg)
• Europe's economy is finally creating jobs, underpinning the region's recovery and promising to help stabilize the global economy as growth in the U.S. slows. (WSJ)   
• Key Reports (WSJ):
12:00p.m. Jan Chicago Fed Midwest Mfg Index. Previous: +0.3%.
1:00p.m. Mar NAHB Housing Market Index. Previous: 40.

Quotable
"The secret of managing is to keep the guys who hate you away from the guys who are undecided."

   Casey Stengel
   
FX Trading – Hmmm….

At times we think we have some handle on the market’s discounting mechanism.   And other times we realize Mark Douglas nails when he says, “Every moment in the market is unique.” 

The setup for a big move lower in $-yen seemed in the cards. 

• Chinese rate hike, though questionable how significantly it really drains money from the system, would seem to add more weight to the theme of declining global liquidity at the edges.  And that would add urgency for leveraged players to act.

• Within the theme of taming the boom, China allowing the yuan to move a bit higher, a bit faster, would not be a surprise; especially with protectionism ripening on the vine.  A stronger yuan should support a higher yen.

• A better understanding that the subprime market has “trillions” of dollars in inter-linked derivatives tied directly and indirectly; and hedge fund players are holding a big part of the bag.

• The specter of contagion is starting to be recognized by the players. 

And yet no matter, as $-yen is up 70 pips as this piece is being penned. 

Sure, Bank of Japan Governor Toshihiko Fukui may “signal” the BOJ is no hurry to hike rates.  Is that new information?  It may be validation if you believe yield differential matters as a driver of yen carry trade unwinding.  We happen to believe it has little to do with yield and a lot to do with risk i.e. fear being a greater motivator than picking up a few more basis points on your yield at this stage in the cycle. 

Jack Crooks