Yesterday, the Euro was able to shrug-off Moody's downgrade of Portugal with the buttress of a well-received Greek debt auction - the positive move was even further resistant to yesterday's positive run in US equity earnings. As a result, EURUSD climbed quickly and was able to break the 1.2700 threshold. Nevertheless, we are not convinced that this rally has any real legs, as liquidity has been poor and leveraged buyers seem to be the core participants driving the EURUSD higher. We suspect the thaw in investor concern will not be as quick or smooth as many talking-heads posit. We do anticipate a sudden reversal in risk appetite but suspect the catalyst will likely be an inconsequential figure such as the underperformance of a bank's earnings or some other, otherwise minor event.

In Asia, regional indexes grabbed onto the positive sentiment and charged higher with the Nikkei up 2.71%, aided by Intel's earnings and Singapore's strong GDP growth. The BoJ's two-day policy meeting began today with analysts universally expecting the central bank to hold rates steady. We are still interested to see if the BoJ will release details pertaining to its stated desire to see bolstered lending from banks to the broader economy. The Yen continues to be influenced by the finicky nature of global risk appetite - yet should rating agencies shift their focus onto Japanese fiscal imbalances, we could see JPY strength quickly unwind. It's our core belief that the sovereign rate crisis radar will eventually target Japan in the mid-term. Mid-to-long term, we are looking for opportunities to the sell the JPY.

In the United Kingdom, the BoE's MPC Sentance continues to rattle his inflationary saber. Today in an interview with the Reading Post, he stressed and affirmed that a gradual withdrawal of some of the stimulus is necessary for future UK economic health. Market participants are re-evaluating whether or not there is some merit to the lone dissenter's arguments as English CPI came in higher-than-expected at 3.2%.

Today's key events are US retail sales and the release of the FOMC minutes. For retail sales, we suspect that the data will disappoint to the downside as fiscal stimulus wears thin and US labor markets fail to convincingly recover in the right places. The minutes should contain some fresh Fed forecasts for the US/global economy. Given the adjustment in recent statements, we believe that the Fed will lower 2010 growth expectations and give recognition to the elevated and resistant unemployment rate. Both events would be significantly negative for risk-correlated trades - something which just could be the EURUSD catalyst we're looking for (and if not we always have China's data tomorrow, including CPI). Forex-Chart