Just when it all looked like going horribly wrong for just about everything, the benign US trade figure prompted a surge in the dollar, and the subsequent upward revisions to Q4 growth (gee, 3%-ish growth seems awfully high for a recession) helped spur a recovery in stocks and risky EM currencies.
The overnight session has featured a continued rally in high yielding currencies (thanks in part to a strong employment report in Oz) and a concomitant collapse in funders. The yen is particularly interesting in this regard, as so far this year USD/JPY, EUR/JPY, NZD/JPY, etc. have all eclipsed their 2006 highs. For the past twelve months, 120 has been a severe resistance for USD/JPY, and after a significant battle this morning, the level finally went.
What is interesting is that a rising (risk) tide does not appear to lift all boats, as Asian currencies other than the CNY have generally fared poorly overnight. There appeards to be differentiation going on, with high yielders substantially outperforming their low yielding brethren. However, Macro Man wishes to wait a bit before plunging into the beta plus carry trade. If 2007 has taught us anything, it is that we cannot rely on yesterday's "break" to follow through today. This time yesterday, everything looked horrible. Today, everything looks great. The reality? Probably somewhere in the middle.