In addition to having that snazzy portrait taken, I’ve also been busy chatting up the wires…(anything for some pub…) . Here, I go out on a limb and say the ECB should cut 100 bp and adopt quantitative ease at this week’s meeting. I made this point earlier in the week, here. If I get it right, maybe I’ll get my 15 minutes of fame like Nouriel Roubini…

The Fed is laying the groundwork for reversing its super-accommodative monetary policy well before the thought of tighter policy crosses the market’s radar. After holding rates too low for too long earlier this decade, the Fed does not want to inflate any fresh bubbles, if at all possible.

At this stage, gold and the dollar are the only two asset classes that look a bit bubbly. Given the US’s need to attract foreign capital, that’s a bubble the Fed can live with, for now.

You know your spending plans are out of step with reality when the New York Times takes a critical look...

• US GDP revised down to -6.2% from -3.8% previously in Q4 as inventories build, exports fall
• Chicago PMI rises to 34.2 in February from 33.3
• University of Michigan consumer sentiment index fell to 56.3 from 61.2 in January
• S&P says still expects more downgrades than upgrades despite CEE bailout package
• Canada reports first current account deficit in decade, budget barely in surplus
• US oil demand lowest in a decade.
• FDIC doubles estimates of bank failure costs, raises insurance fee
• S&P index closes below November low, down 11% for February

There was crazy price action today during the new York morning with markets extremely thin for month-end. EUR/USD fell to 1.2605 after US GDP came in at a disappointing -6.2% but was soon snapped up, rebounding all the way to 1.2737 by the 16:00 GMT fixing. There was talk of a trading error ahead of the fixing which required a large amount of EUR/USD to be dumped shortly there after, pushing it down to 1.2630 before it bounced to 1.2720 again. Day’s range in NY: 1.2605/1.2737

USD/JPY was whippy as well with heavy profit-taking early in the session helping trigger stops below the 97.10 and 97.00 levels. USD/JPY fell to 96.90 before exploding to the topside, reaching 98.16 before stalling. NY range 96.90/98.16.

Cable recovered heavy early losses after the poor US data and a wave of GBP/JPY profit-taking, rebounding to 1.4345 before stalling. 1.4383 is next resistance, the 50% retracement of the week’s 1.4657/1.4111 range.

NY session range forGBP/USD 1.4111/1.4345

Let me get this straight: the same geniuses who rated sub-prime poop as AAA today downgrades a bank that the US government holds a 40% stake in and has vowed it will not let fail. There seems to be something of a disconnect there, but I’m just a humble FX scribe.

US equities are back under pressure, down 1.6% with about 35 minutes to go. EUR/USD has dipped to 1.2680 as stocks go soft.

Boston Fed president Rosengren is more upbeat than most, predicting positive GDP growth in the second half of the year for many countries (though Reuters does not say if he includes the US). The Fed he says, will take all necessary actions to stabilize the economy, a formulation the Chairman has used in recent weeks. The Fed could expand its purchases of Freddie and Fannie paper, he added.

EUR/USD is back above 1.2700 with US equities well off earlier lows. The Dow has gone positive a few times this afternoon after reversing losses in excess of 2% earlier in the day. It is now down 0.3%.

A small Louiisiana-based bank has applied to return the $90 mln it received via the TARP. They won’t be the last as the government makes banks jump through hoops in return for cash that many banks just don’t need.

It’s not often the Treaury Secretary of the United States is compared to a stripper of old. We can’t ignore it when it happens.

Hard to imagine but it seems as though risk aversion is lessening as a Friday afternoon wears on. News that GE has finally cut its dividend after months of market speculation that it would be forced to do just that may spark a bit of “sell on the rumor/buy on the news” reaction in equities. Some fear a short-covering rally into the close on Wall Street today given the unambiguously bad news absorbed so far this week. The break to new lows in the S&P and the subsequent recovery from those lows may prove to be the catalyst. 741.00 is the level to watch.

EUR/USD trades at 1.2705, shadowing cable as that pair stages a late-session rally, now at 1.4340.

While most have headed for the sidelines for the weekend after a whiplash inducing morning session a few diehards are still active in cable. The pound trades at its highs for the day, just now breaking above the 1.4320 level which is the 38.2% retracement of this week’s drop from 1.4657 to 1.4110 which s situated at 1.4320.

1.4383 is solid further resistance on rebounds. There is an hourly top there from Thursday as well as the 50% fibo of the week’s range.

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