The USD was mildly weaker against the majors, with the commodity currency seeing the largest appreciation after yesterday's fall. While not a complete surprise, China's 50bp hike in banks reserve ratio put risk on a back footing, highlighting how sensitive market participants are to any tightening. The move is expected to freeze roughly CNY270bn at Chinese banks. Given China's massive demand for commodities, it was logical that a selling in the commodity currencies (AUD hardest hit) would be seen. It seems to us that the move yesterday was merely an effort to prevent the speculative bubble by reeling in excessive bank lending, not an outright move to tighten policy. The negative sentiment trickled over in US equity markets, which closed broadly lower, and Asian regional indexes are falling, led by Shanghai, down -3.09% at the time of writing. The unwind of risk correlated trades, combined with lower US yield and long position liquidation, pushed the USDJPY lower yesterday. However, in the early European session, risk appetite seemed to be creeping back into the markets, as the AUDUSD started the day around 0.9180, before a steady climb to 0.9245. Carry trades have also seen decent demand, supported by VIX dropping to 18.25, with the EURJPY rallying to 132.42, GBPJPY to 148.20 and NZDJPY, helped by a strong worker confidence and ANZ commodity price index, crawls to 0.7422. In other news, ultra hawk Philly Fed Plosser stated the US economy was recovering from recession, with moderate growth and low inflation. He continued in the expected fashion, saying the Fed will need to increase interest rates as economy continues to recover and must hike rates before the jobless levels are acceptable. The comments gave the USD a slight boost, which quickly faded but illustrated a noticeable shift in Fed speakers tone since the New Year, from dovish to slightly hawkish. The Greek situation continues to linger and hinder the EUR movement. Yesterday, the European Commission, in their harshest report yet, explained that Greece's public finances contained several persistent irregularities and including unreliability of data, non-respect of accounting rules, and timing of the notifications...The report wrapped up saying that unless the institutional weaknesses uncovered during the investigation of the irregularities underlying the 2009 notifications of data are corrected and proper checks and balances introduced, the reliability of Greek deficit and debt data will remain in question. Currently, the cost of insuring against debt default in European nations is higher than for top investment grade corporate for the first time. The EURCHF had some interesting price action at the start of the European session, accompanied with rumors of local names buying. We will be watching carefully, as we don't believe the SNB is done with physical intervention. With today's light economic calendar, we expect FX markets to be range bound with little reason to break fx out of this funk. And finally, in regards to the Feds reported $45bn windfall profit from 2009 operations, placing a $1.3trn bet (expansion in balance sheet) to make $45bn seems like a mediocre risk-to-reward trade to me.