• US dollar index falls below key 78.80 intraday, rebounds to close near 79.00
  • Dutch finance minister says ministers reject call to raise euro fund to EUR 750 bln
  • NY Fed’s Empire State Manufacturing index rises to 11.9 in January from 9.9 in December.
  • US TIC data shows massive US inflows in month of November during height of the Irish crisis. Net buying of long-term securities ex-swaps was $85.1 bln versus $28.9 bln the month before.
  • Bank of Canada: “This leaves considerable monetary stimulus in place, consistent with achieving the 2 per cent inflation target in an environment of significant excess supply in Canada. Any further reduction in monetary policy stimulus would need to be carefully considered.” Translation: No rate hike soon.
  • Irish central bank printing euros? FT
  • Irish PM wins party leadership vote
  • Belgium sells 10 bonds at 93 bp over mid-swaps
  • ECB’s Weber: Inflation will stay below 2% target in medium-term. Expects will peak around March at 2.4%.
  • US yields spike in early NY trade. Fat fingers-suspected. 3.41% high yield intraday. Closes at 3.37%, up 3.5 bp
  • US equities form at close, end at 1295
  • CRB up 0.2%, oil down 0.3%. gold little changed at $1367.50

The markets sprung to life just after 9 am in NY as US yields shot higher for no apparent reason. Traders immediately bought EUR/USD and USD/JPY on the move. EUR/USD befitted on the idea that there was a US-negative credit story at the root cause of the move while USD/JPY was boosted by the higher yields.

EUR/USD roared as high as 1.3467 very briefly before sliding back below where it all began as Europe squared up for the day. India was an intraday buyer of EUR/USD on weakness this morning and helped cap the market with sales above 1.3450, traders reported.

We pulled back intraday below the 1.3370 level that had acted as support previously, washing out some longs down to 1.3357 before prices steadied…

USD/JPY jumped to 82.83 on the US rate spike with Japanese names out of Tokyo seen as aggressive buyers. Support at 82.25/30 held on today’s dip as low as 82.34.

Cable rallied along with EUR/USD but topped out below its London highs of 1.6060., stalling at 1.6033. We slipped through intraday support at 1.5950 to trigger stops during the middle of a quiet US afternoon. Talk that UK-listed BHP Billliton could make a run at US-based Mosaic may have been a catalyst for the downside probe.

USD/CAD fell as low as 0.9832 in advance of the BOC meeting on the misguided notion that the BOC would sound a hawkish note. They did not, and made clear that the strong currency will keep them on the sidelines near-term. They did raise their GDP outlook marginally to 2.4% in 2011