Markets are testing places. Just when it looks safe to buy or sell something and it looks like you simply couldn't be wrong, bang! There comes something out of the blue to kill your story. After a strong start to the week the dollar is taking the backseat today as currency traders respond to the latest coincident responses from Tokyo and Sydney to the global recession. The broad result has been to entice investors' risk appetite. The euro is back above $1.4325 as we tap the keyboard, while the Aussie and Canadian dollars are both higher indicating a firmer background looking forward.

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So the question is whether this yet another big head fake or is it the real deal. Don't get us wrong, we welcome stimulus in any shape and fashion. Our perspective, rightly or wrongly, is that there will be a sustained move into the dollar based on the dawning realization that whatever packages are announced will take time to take root and to have a desired impact. You have to remember that this exercise is not like decorating a giant birthday cake in search of securing a big 'wow' from a bunch of five-year olds. The economic battleground stretching out as far as the eye can see will require skilful leadership and not just an ability to print money.

Overnight the Japanese announced an $11.2 billion scheme to buy securities of financial companies with the aim of reviving demand for higher-yielding assets. That's another way of saying the government wants to unclog the lending logjam. The yen is weaker against the euro at ¥115.05.

The Australian central bank slashed rates by 1% to the lowest since 1964, reducing the benchmark rate to 3.25%. Yesterday investors shorted the Aussie over such fears only to miss the well-timed announcement of an A$42billion package skewed heavily towards improving infrastructure, while around one-third of that amount will be made available in grant form to families and low-income earners. One Australian dollar buys 64.10 US cents today – up from 63.13 yesterday. The problem we have in seeing the glorious Gold Coast sunshine here is that the package will allegedly afford growth in the Australian economy of 1.1% in 2009 and 0.9% in 2010. That's hardly adding over time is it? Nor does it help replace the loss of global demand.

The Canadian dollar has been dragged up by the bootstraps in sympathy with its commodity cohort down under. It has rallied from $1.2427 to $1.2415. This early morning phenomenon may be running out of steam as we write, but it underscores the point that we are making. For want of nothing better, currencies are feeding off additional measures aimed at supporting their local economies. To us, such measures have the impact of drops in the ocean and nothing more.

In the Eurozone continued evidence of price deflation was embedded within the December factory goods report, which delivered a 1.2% monthly drop in prices of goods leaving the factory gate. Such reports are sensitive to not only demand changes, but also input costs, and while we don't mean to downplay the reading after November's 2% decline the drift down in prices is significant. Just to put this in perspective as risk appetite apparently returns, perhaps more of you reading this can't help but agree that such a resumption of risk-taking and the euro uncomfortably close to a $1.2335 two-and-a-half-year low.

In Monday's option trading one investor bought a 600-lot March 135/137 call spread for a net 40 cent premium using the PHLX World Currency Options. The investor is looking for the euro to continue its rally in the week's ahead and the trade breaks even at a spot rate of $1.3540.

More evidence in snow-jammed Britain, where the proverbial wrong kind of snow caused the country to practically close down for a second day, of contraction as the CIPS noted further construction contraction with a monthly reading on this diffusion index of 34.5. You can guess what impact the loss of two days will have for February's statistics when they are announced next month. The pound is nevertheless trading up against the dollar at $1.4367 from Monday's $1.4282, but is weaker against the euro at 90.25 pennies.