With no negative news flow out of Europe overnight, investors took currencies and equities higher on the sheer relief that no news is good news. Volatility has subsided which helped to lead a rally in risk after rating agency Fitch confirmed Germany's AAA rating and reassured investors that France would not fall victim to a downgrade this year. The improvement in risk also pushed the dollar lower against most of the major currencies but for the time being, the rally in European currencies is far from impressive. The only currency enjoying any substantial momentum is the New Zealand dollar which has risen to its highest level in 2 months. There was little in the way of U.S. economic data this morning - wholesale inventories and the IBD/TIPP Economic Optimism indices were the only pieces of data on the docket. According to the sentiment index, consumers grew slightly less pessimistic in the month of January and there is no question that the labor market has played a role in this improvement. Wholesale inventories rose 0.1 percent which was less than expected but sales rose 0.6 percent in November. The rebuilding of inventory should contribute positively to the December or January reports.
In the meantime, USD/JPY continues to maintain its usual grind by trading in a very tight range. EU Commissioner Rehn was on the wires earlier this morning saying that Eurobonds could rival U.S. Treasuries as a safe haven. Although the introduction of Eurobonds could provide a strong solution for the region, it has very little support by key players. With very little on the docket for the rest of the day, short EUR/USD positions could be squeezed further as long as U.S. equities maintain their gains. Federal Reserve Presidents Williams, Pianalto and George are scheduled to speak later today on the economy and we expect them to acknowledge the recent improvements in data but keep the door for further easing.