Archived IMT (2010.03.11)

Markets are increasingly tying last nights stronger than expected China inflation to rising chances of a tightening decision from the PBOC tomorrow (higher reserves requirements, rate hikes or more cutback in bank lending). Any further tightening action from China would crimp the risk trade to the benefit of the US dollar. This may help explain golds retreat towards 1100 despite the fact that the metal began falling in NY Wed afternoon trade. Readers of this website were warned 1 day before the Feb 12 increase in reserve requirements by the PBOC when the media was abuzz with Greece. Our rationale for alerting the RR hike was based on stronger than expected Jan banking loans data (and not on CPI which was softer than expected). Today, the media is more mature in these matters, expanding its coverage of a possible tightening as early as tomorrow (40% possible). GBPUSD fails at 1.5048, eyeing 1.4930, CAD broadens losses , eyeing 1.0345 and 87.20 in USDCAD and CADJPY respectively.