US Dollar
A crazy day in the markets for any trader, as the US dollar looks to end mixed against most of the majors in New York. Notably during the session, the Dow Jones Industrial Average traded below the 12,000 level, causing some panic as the benchmark fluctuated wildly during the morning hours and didn’t find footing till the afternoon. But through all of the volatility, the greenback gained slightly against a handful of majors on the session supported by a narrower than expected current account deficit. Released in the New York morning, the current account shrunk to $195.8 billion compared to estimates of a $204 billion shortfall in the fourth quarter. The improvements were attributed, for the most part, to lower crude oil imports and larger amounts of investment income paid to US investors. Foreign investors, on the other hand made less in US investments, with the US government paying approximately $2.5 billion less in interest payments to foreign entities and investors. Although the recent Commerce Department report does calm fears of infrastructure weakness, the potential continues to remains as the US needs to attract $2.1 billion a day to fund the current gap. The notion is especially threatening when considering the record gap in 2006. Last year, the current account shortfall swelled to $856.7 billion, the largest on record. The gap fell well short of the previous year’s $791.5 billion, equaling a whopping 6.5 percent of gross domestic product. Subsequently, today’s figure will play into tomorrow’s TIC data release in the morning. Although producer prices will be considered in tandem, the TIC will likely supports today’s findings, or counter them, turning the market dollar bearish. Comparatively, producer prices will help to ensure that the Federal Reserve will keep at the current stance of no-decision in the immediate future.

Euro
Data wasn’t promising for the European Euro. Although the figures were of little less importance, than say regional consumer prices, the day’s reports still shed a dimmer light on the current European recovery. Released in the early morning, Euro Zone industrial production fell by 0.2 percent on the month over month measure. The decline subsequently brought the annualized figure lower, suggesting that production may be softer in the near term due to thinner global demand. However, one cannot preclude the possibility of near term pullback in productivity as the report vaulted a whopping 1 percent last month. The survey results combined with lower than expected ZEW results in Switzerland helping to bring the euro down against the dollar for only a second, low enough to hit the 1.3177 session low before rebounding. Finding a footing, the European currency rebounded ahead of a speech by European Central Bank President Jean Claude Trichet. Speaking as a guest lecturer at an event sponsored by the European Policy Forum, Trichet reaffirmed markets that the current inflationary expectations remained stable even in the light of market volatility. The statements open up further potential for rate hikes in the near term, following the most recent 25 basis point addition. Ultimately, with everything said and done, speculation is now siding with an imminent hike by the Swiss National Bank in the overnight. In keeping with the overall region’s central bank, probabilities are running high that Swiss policy makers will not want to stray from the ECB’s outlook, maintaining a hawkish bias. The sentiment is likely to keep both Swiss and Euro higher against the dollar running up to the New York open.

British Pound
There was plenty of reason to bid the pound sterling higher on the day, besides the technical support that pushed the currency pair up in afternoon trading. In the overnight, fundamentals continue to purport a lively and improved British economy for the month. Unemployment in the UK remained steady at 5.5 percent with the claimant count change falling by 3,800. Now although the figure for jobseeker’s allowance was less than expected, the decline was the fifth consecutive monthly reduction, lending to the notion of a strong and supported labor force as growth rebounds. Even more impressive was the increase in average earnings. According to the Office for National Statistics in London, wage earnings rose 4.2 percent, up another 0.2 percent on the previous month and the highest print since last July. The increase is helping to bolster speculation of another rate hike in next couple of months as central bankers key in on wage pressures fueling further speculation. Although consumer prices have declined slightly, they still remain at the top of the BOE’s target, warranting further curbing by policy makers. Further speculation won’t get another boost until next week when consumer price figures are expected for release.

Japanese Yen
The Japanese yen seemed to be powered by US stock market action as the two ran in tandem for most of the New York session. Testing the 116.00 technical support, the currency pair came close to breaking lower, approaching the key test of 115.00. Optimistic from a charting perspective, the price action did run counter to rather down data from the world’s second largest economy. Industrial production fell more than expected for the Japanese economy, dropping 1.7 percent on the month and dragging the annualized figure lower to 4 percent. The pullback for the most part seemed to be negligible as the year on year gauge remained supported by an improved increase in shipments. For the year, the shipments component was revised higher to 4.6 percent, suggesting continued strength in the export sector. The notion leads traders in to the Tertiary index set for release in the overnight.

Commodity Currencies (CAD, AUD, NZD)
Comm-dollars were higher with Canadian dollar gains limited in the session. Although manufacturing activity slowed in New Zealand and consumer confidence rose in Australia, it was comments by Bollard that made headlines today. Speaking to the Wellington Chamber of Commerce, RBNZ Governor Bollard cautioned against the carry trade and the use of “cheap” money through international lending for households. The suggestion now has speculation turning to indications of housing and housing price growth as central bankers retain a hawkish bias, possibly setting up for another rate hike in the future.

Kathy Lien is the Chief Currency Strategist at FXCM.