Currencies spent the last working day of the week in generally listless trade until comments by German Finance Minister Peer Steinbrueck roiled the market sending EUR/USD sharply lower in early morning Frankfurt session. Mr. Steinbreuk noted that euro was at risk if the EU's Stability and Growth Pact isn't taken seriously.

It has been an extremely interesting day in the currency market with Treasury Secretary Timothy Geithner tripping over his comments about the U.S. dollar and an auction of 5 year Treasury notes seeing surprising weak results. Geithner’s fumble could not come at a worst time as investors remain skeptical about the effectiveness of the Obama Administration’s efforts to stimulate the U.S. economy. Top that off with the failed Treasury auction and it is clear that the actions of everyone in the Obama Administration from the Treasury Secretary to the Federal Reserve Chairman have left an air of uncertainty across the financial markets. The U.S. dollar has weakened against the Euro and Japanese Yen but ended the day unchanged against the commodity currencies.

In a blink of an eye, the U.S. dollar has collapsed against the Euro, Japanese Yen and other major currencies. The trigger was comments from Tim Geithner who said that the U.S. is "quite open" to China's suggestion of moving towards a Special Drawing Right (SDR) linked currency system

Compared to yesterday’s sharp moves in the currency and equity markets, trading has been relatively quiet. U.S. stocks meandered in and out of negative territory while the U.S. dollar traded higher against nearly all of the major currencies. Profit taking has hit the financial markets dragging equities and currencies lower. This consolidation gives investors the time to think about whether Monday’s rally is the beginning of a new bull market or just a strong bear market rally. Since March 6th, the S&P 500 has increased 23 percent, which is marginally less than some of the rebounds that we saw during the Great Depression. The point is that equities could still extend its gains while remaining in an overall downtrend.

Currencies and equities have strengthened across the board suggesting that risk appetite may be improving. The dollar, which has been a refuge for safe haven flows, fell against all of the major currencies except for the Japanese Yen. In fact, the rally in USD/JPY has been voracious with the currency pair rising 2.5 percent to an 11 week high. The move today has been driven by a variety of factors, none of which in our opinion are meaningful enough to sustain the rally.