Quick Note on Weekend Developments

The US dollar is opening broadly higher in early and thin Asian activity.  The thinness of market conditions is surely playing a role, but the weekend news would encourage risk aversion.  First, the radioactive leak in Japan has yet to stabilize.  Second, the MENA tensions rose in especially in Syria.  Third both Merkel and Sarkozy's parties took a thumping in local elections.  Fourth, Portugal is still in denial about the need of assistance and the bond.  Portugal's 2-year yield rose rose 84 bp last week to 6.65%.

By late Friday it became clear that there were to be no grand bargain at the EU Summit.  Still the key driver of the euro has been the signals that the ECB will hike rates at the April 7 meeting.  Some dollar bears ask, "Where would the euro be if it weren't for the debt crisis in the periphery ?".  I wonder where the euro would be if the Fed was pursuing only easy monetary policy and not extraordinarily loose monetary policy.   On balance, the week's events were largely unsurprising and that warns that these early dollar gains are vulnerable. 

In terms of market positioning at the IMM, nothing very interesting, except for the jump in long sterling positions by speculators.  Previously they had a net position short a couple hundred contracts, but as of last Tuesday amassed a net long position of 29.7 thousand contracts.  Sterling reached a multi-month high then near $1.6400 and has fallen nearly four cents and no doubt some of these late longs were washed out.