Archived IMT (2011.04.05)

Tightening policy in China, attempts of restrictive fiscal policies in the US and another credit downgrade on Portugal do not stand in the way of the soaring markets as long as the risk trade is financed by a falling US dollar (courtesy of an immobile Fed) and a falling yen (courtesy of seasonal post-FY Jpns outflows). The 4th Chinese rate hike (3.25% lending rate and 6.31% borrowing rate) is understood to tackle further inflation gains, with a high profile 7.2% in food inflation. Neither did 9.99% on 10-year Portuguese yields could maintain a lasting dent on risk appetite. With USDJPY nearing the 85 yen level and USD weakness having the last word in a volatile intraday session, traders continue to see upside in EURJPY (120.70s) and an opportunity for 139 in GBPJPY (for those who are quick on the trigger in the event that BoE raise rates). Unlike the BoE, which does NOT publish a statement after the policy decision, the ECB will use the 30 mins press conference to explain its Thursday decision, which could be delivered in such a way to TEMPER anticipations of further rate hikes and rein in excessive EUR strength. AL