The Usd was range bound in the Asian session, as traders position themselves ahead of today's ECB rate announcement. The EurUsd bounced around the 1.3220 to 1.3140 levels, while the UsdJpy traded lower from 89.26 to 88.49. The AudJpy also slipped in choppy trading from 59.37 to 58.20. After a rough day on Wall Street, with the S&P closing down 3.34%, Asian regional indexes are all trading lower and Europe is not fairing much better. The much anticipated popping of the bond bubble seems to have been delayed. In yesterday's trading in the US, Trsy 10yrs yield plunged as US retail sales for December fell off a cliff. The smartest trade of 2009 will have to wait, as we expect 10yrs yield to fall around 1.5% by mid year.
The clear highlight of the day will be the ECB rate announcement. Currently, the markets have fully priced in a 50bp cut to 2.00%. Markets have recently noted ECB member's cautious tone and we expect will be echoed in today's accompanying press conference. The Euro Zone industrial production figures (-1.6%) just cement our feeling that the ECB is underestimating the need to move lower quickly and we are concerned that the region will be one of the last to start the road to recovery. In our view, at the end of the day the ECB will have to embrace the terrible economic data and follow the Fed down to very close to zero.