Demand for high beta currencies and risk-correlated assets is mixed after the Asian session and midway through the European session, as some better than expected New Zealand trade data has lifted both the Aussie and the Kiwi, although the Canadian Dollar continues to struggle in the wake of several bank downgrades yesterday. Today seems like a day in which markets are coming unstuck and correlations are breaking down, as the commodity currencies have diverged quite meaningfully from US equity markets, with the S&P 500 futures pointing to an open back towards 1492. Seemingly, this has come on the back of a stronger Japanese Yen, which has continued an interesting trend of recent: strength at the beginning of the week, moderation by Wednesday, and another big sell-off by the Yen headed into the weekend. Both the Yen and the S&P 500 are at critical junctures, considering that both are nearing levels of technical exhaustion. On one hand, Japanese policymakers are doing little to stand in the way of the Yen’s depreciation; on the other, Fed policymakers are talking about a potential exit strategy despite upping their asset purchase program in December. In both cases, volatility across major assets will be likely, as central banks grapple with the daunting task of keeping market participants calm as liquidity is withdrawn and injected at spurious moments. Taking a look at European credit, peripheral yields are slightly lower despite a mostly positive Italian bond auction this morning, providing little support for the Euro. The Italian 2-year note yield has decreased to 1.497% (-3.4-bps) while the Spanish 2-year note yield has decreased to 2.425% (-3.9-bps). Likwise, the Italian 10-year note yield has decreased to 4.183% (-1.7-bps) while the Spanish 10-year note yield has decreased to 5.172% (-4.4-bps); lower yields imply higher prices.

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