Capital flight has driven the US dollar higher. On a day when President Obama signed the Economic Stimulus Package into law, the banking turmoil in Europe and the resignation of Japan’s Finance Minister has turned investors away from other major currencies. Even though the greenback is yielding next to nothing, investors are willing to park their money with the US government as long as they keep it safe. The lack of negative game changing news from the US has been very positive for the US dollar. The greenback and gold prices have been moving in tandem since January 14th. This unusual correlation is actually sending a strong message to currency traders.

The EZ Trade Balance for November registered its ninth negative reading in 2008 as higher exchange rates and significant slowdown in global demand continued to pose difficulties for the export driven region.

The EURUSD erased almost all of its Asia session gains after a news report that Ireland may call in the IMF if the country’s economy worsens hit the wires at the start of European trade. The currency market which was steadily bidding up the EUR/USD pair in a bout of short covering ahead of Thursday’s ECB interest rate announcement was caught completely wrong footed and the unit plunged 100 points in 20 minutes on fears that such a move would create unprecedented political stress in the region.