Currency Focus

EUR - There's not much surprise here. He's (Trichet) saying monetary policy is still extremely accommodative. This puts the stamp on a rate hike in March and also keeps speculation intact of a move to 4 percent by June. So far, the ECB press conference is yielding few surprises, with Trichet confirming a March rate hike and pointing to further rate increases later in the year, but with indeterminate timing. The risks at this point seem to be to the EUR downside since perceptions of a delay in further tightening will reduce the incentive to hold Euros relative to Dollars.

JPY - The yen has continued to weaken and the market is increasingly complacent regarding the G7 meeting. Haru's comments have also worked against the yen at the margins. The next obvious risk to the yen following the G7 meeting will be the BOJ policy board meeting on Feb. 20. At present, markets see only a 35% probability of a tightening at that meeting and to the extent that those expectations persist or decline even further, the yen should remain weak.

AUD - Markets get confused when too much information is thrown at it at one time, and the combination of the softer employment but stronger unemployment initially caused some confusion. The focus is now on the statement of monetary policy, (due on Monday). The data does suggest that there is some further upside risk on Aussie. We have seen a lot of Aussie sold on softer CPI and some of the risk is that Aussie needs to be bought back ahead of the statement of monetary policy.