Non-farm payrolls fell 598k in the month of January, the largest decline in 35 years. Yet the US dollar rallied against the Japanese yen and all of the higher yielding risk currencies are higher. What is going on?

The price action in the currency market indicates that forex traders are becoming numb to bad US data. Nothing seems to surprise especially when they feel the weakness of the labor market first hand through job losses of their friends and neighbors.

As the recession continues, traders are looking beyond the undeniably weak data to the hope for a better tomorrow. Whether that hope is correctly place is debatable because the length of time that job losses have exceeded 500k is more indicative of a mild depression than a recession.

All eyes are on Washington as politics trumps economics. Despite the staggering job losses, the markets are not terribly focused on the non-farm payrolls report. Instead taders are hopeful about developments in Washington including a possible Senate vote today and a bank rescue package to be announced by Treasury Secretary Geithner on Monday. We have long said that a meaningful recovery can only be triggered by a grand sweeping fiscal stimulus plan because monetary stimulus has dried up - and that plan could be right around the corner.

Kathy Lien is Director of Currency Research at GFT, and runs KathyLien.com.