We are starting to see a shift in the construct of the market and the structural change would suggest that investors are looking to find security in safe-haven assets... We are starting to see what could be some form of a structural shift within the markets, with currencies, equities and commodities all pulling back in recent trade and relenting to what has been a very beaten up US Dollar. Much of this price action has been driven off of risk aversion themes, and as such, it is no surprise to still see the Yen and Swiss Franc outperforming. Usd/Jpy has broken back below 80.00, while Usd/Chf hovers over yet another record low in the 0.8500’s. Of the currencies that have been the most hit, it is the commodity bloc that really stands out, and again, this is to be expected with sentiment shifting away from risk and yield. The Australian Dollar has been the stand out underperformer into Thursday, and the relative weakness could very well continue after a very disappointing retail sales print. The markets had been looking for a +0.5% reading when in fact the data came out at -0.5%. This quite a disappointment and has taken the wind out of the sails of the mighty Australian Dollar for now. Of course, given that the currency had recently broken 1.1000 barriers to trade by post float record highs, a necessary corrective pullback had already been anticipated. Technical studies in Aud/Usd were highly overbought and were in fact warning of the current reversal. Overall, a good deal of the direction in the currency markets going forward will be contingent on monetary policy outlooks from various key central banks. Recent comments from various Fed officials continue to remain rather accommodative, although some Fed members have tilted to the more hawkish side, while European central bankers continue to warn of near term rate hikes. This combination of outlooks from these two major central banks has been a key driver in the weakness in the US Dollar and something will need to change from on outlook standpoint on either end for any real USD rally hopes. Conveniently, the focus now shifts to today’s key event risk which comes in the form of the Bank of England and European Central Bank rate decisions. While the Bank of England decision is expected to be a non-factor, with rates seen remaining on hold at 0.50%, particularly in light of a string of concerning UK economic data (and despite ongoing inflation concerns), the European Central Bank decision should bring with it a good deal more volatility. Although the ECB is widely expected to keep rates on hold at 1.25%, all eyes will be on Mr. Trichet’s follow up press conference to see whether he signals the need for further rate hikes over the near term. The bout of economic data out of Europe on Thursday was far from impressive, with German factory orders shockingly weaker than the +0.4% expected, coming in at -4.0%, and UK services PMI also below consensus. Looking ahead, aside from the ECB and BOE event risk, the calendar in the North America is rather quiet, with Canada Ivey PMI the only stand out. However, Fed Chair Bernanke should make up for that with the central banker due to speak at 13:30GMT at the Chicago Fed Banking Conference. Bernanke’s speech takes on added market moving influence as it comes just after the Trichet press conference. US equity futures have recovered a bit along with gold prices, while oil is tracking moderately lower.

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