Key News

http://www.ibtimes.com/data/bigimages/6770.jpg Swan Pushes Australia's Budget Deficit to Record Amid a Global Recession (Bloomberg)

Asian stocks fell , dragging the MSCI Asia Pacific Index from a seven-month high, as investors sold shares trading at their most expensive valuations in five years. (Bloomberg)

The U.S. trade deficit probably widened in March from a nine-year low as higher oil prices boosted the import tab, economists said before a report today.

China's Fixed-Asset Investment Surges 30.5% on Stimulus as Exports Slump (Bloomberg)

Key Reports Due (WSJ):

Quotable

“I have not failed. I've just found 10,000 ways that don't work.”

Thomas Edison

FX Trading – Seems Obvious

Jack noted it yesterday: the consensus anticipated a sell-off in stocks. I certainly didn't disagree with all the headlines – indeed, over the last two weeks I've been harping on the potential (read: need) for stocks to sell off. But I do agree with Jack's point that it's not always a good thing when you find yourself in the same predictive position as mainstream analysis.

Either way, the market talked about the potential for a sell-off yesterday and that's exactly what we got. Not surprisingly the risk dynamic remained in play – the commodity-dollars sunk; the European currencies forfeited ground to the buck; the Japanese yen took solace in the risk-averse money flow.

With the exception of some backing and filling, currencies still look a little heavy here ...

The British pound and the euro, though, have successfully erased yesterday's losses already. Perhaps it's a bit of stop-hunting happening here ahead of the US session as some of the less-sure shorts are shaken out:

EURUSD hourly: testing yesterday's highs.

GBPUSD hourly: also testing yesterday's highs as UK data out today exceeded expectations.

Focus will turn to US trade data out later this morning to see if euro and pound can keep trucking higher. Rising oil prices are seen as the primary driver of a larger deficit than seen in the prior month. While the import side of the equation makes a difference, little is expected from the export side. Should the US trade data lack any surprises, we could see the European currencies drag the others higher on a confirmed breakout of yesterday's highs.

But of course, you've got to keep your eye on stocks ...

As the market starts weighing the nine-week rally, precisely whether the fundamentals can justify the price action (which I find hard to believe they can), currencies will hang in the balance.

What happens in the nearer-term, I think, will be at least a consolidation of the S&P's 30%-plus gains since March. Whether that consolidation process began yesterday … or whether it doesn't begin till investors stop expecting it ... remains to be seen. But considering key technical levels are coming into play, now would seem a logical stopping point.

Over the longer-term, we believe unemployment and its impact on income and spending will be an inconvenience in the hopeful path toward full recovery. It could be this realization that really changes the perspective of global market players ... at which case the dependence on the US will again take center stage.

The overall definition and understanding of “recovery” will be crucial going forward. So far less-dramatic contraction constitutes signs of recovery. But what happens when investors start expecting more than “less-bad”? What happens when they start expecting circa-2006 type growth? Based on the overall appetite for spending and the renewed necessity of paying down debt, recovery isn't going to bring back the bubblicious trends we came to [irresponsibly] believe characterized economic prosperity.