Thank You Sir, Can I Have Another ?

Portugal has been downgraded by both Fitch (A-) and S&P (BBB) and the EU Summit looks like modest techical adjustments that have largely been unveiled.  The euro (yawn) is little changed.    On the week it is a mere 0.1% lower, less than a rounding error for most participants.  Its resilience remains remarkable.  It is coming at the same time that Q1 US GDP expectations have been shaved and few doubt that the Fed will abandon its Treasury purchases.  I continue to suspect the market is setting up for "buy the rumor sell the fact" on the April 7th rate hike. 

The strongest currencies this week have been the dollar-bloc currencies, with the New Zealand dollar leading with a 2.8% rise.  Although it has been difficult to play, given the Japanese events adn cross impacts, but I have liked the Kiwi since the 50 bp rate cut and think many observers have misconstrued the implications.  It is movoing above $0.7500 today and I think there is potential toward $0.7700 or so.

Canadian dollar strength is also impressive, though its gain is about a third of the New Zelaand dollar.  Soft US data and some caution around the government which is liekly to lose a vote of confidence today. 

Japan's Minisitry of Finance weekly flow data give further evidence for a couple of our points about the yen.  First Japanese institutional investors were net buyers of foreign bonds in the March 13-16 week.  This suggests repatriation flows were not the main driver of the yen's strength.  Second the dramatic drop in the Japanese stock market was not a function of foreign selling.  In fact, much to the contrary, foreign investors bought a net of around $11 bln worth of Japanese equities, which is about 50% of what they had bought in the 10 weeks of the year. 

Weakest currencies this week include the Swiss franc (-1.3%) and the Japanese yen (-0.8%) and Swedish krona stuck between (-1%).  Arguably the weakness of the Swiss franc reflects risk-on appetites, also reflected in equity markets.   Dollar-yen implied volatility continues to slip and now is below 11%.   The dollar has climbed to its highest level since the intervention  just shy of JPY81.40.     Sterling has also lost some luster after making new multi-month highs on Tuesday.  It hs lost 3.5 cents from the week's high as a number of signals have served to underscore the fragility of the economy and that the BOE is unlikely to raise rats next month.  Though, to say as the one pundit claimed that the BOE has abandoned its inflation target is a bit of a stretch.