• More short-covering by hedge funds send currencies and stocks higher, safe-havens lower
  • EU’s Barroso unveils bank recapitalization plan; no bonuses or dividends without recapitalization
  • Rumors of SNB-like cap for JPY boost USD/JPY; reports of high radiation in Tokyo help
  • Greek haircuts of 30-50% being discussed by EU: Reuters
  • Greek PM says negotiating to reduce Greece’s tax burden
  • Slovakian caretaker government installed; EFSF vote no later than Friday
  • Bank of Italy Draghi: Italy wasting time; needs to fix finances, growth urgently
  • German FinMin: No way around haircuts for Greek bondholders; Greek debt levels must be reduced
  • Irish FinMin Noonan expects 75 bp in rate cuts from the ECB
  • Fed’s Plosser does not foresee double-dip recession
  • FT: European banks to sell assets rather than raise capital
  • FT: China held 1.9 bln tons of copper inventories at the end of 2010; more than 1-year of US consumption
  • AFP: EFSF may be leveraged up to 5X; total of EUR 2.5 trln
  • S&P 500 trims gains, closes up 1% at 1207
  • US 10-year note yield rises 5 bp to 2.21%
  • WTI falls 1% to $84.88; gold rises %14 to $1676.75

EUR/USD extended the furious rally begun in Europe, reaching 1.3833 before relenting. The pair has retraced 38.2% of the drop from 1.4940 to 1.3140, in essence, and gave some late ground on profit-taking in afternoon trade. A story from the FT suggesting that some of Europe’s largest banks will elect to trim down their operations rater than raise fresh capital was a downer for the market. Asset sales will be slow and piecemeal while capital injections could move forward relatively quickly, especially if engineered by the governments of the euro group. We end the session at 1.3790.

Bids are rumored t 1.3750/60 on pullbacks with larger bids waiting at 1.3690/00. Offers extend from 1.3840 to 1.3850; stops are seen above 1.3850 with large sellers toward key resistance at 1.3925.

This morning’s rally in risk was robust enough to blast even USD/JPY from its complacent ranges. Stops above 77.00 and 77.25 were triggered as EUR/JPY jumped with share prices and rumors made the rounds that the BOJ may emulate the SNB and institute a JPY floor. Some said 80.00 is the rumored level for a BOJ flow. We stalled shy of 77.50, at 77.49, suggesting a barrier is in play. EUR/JPT reached 107.04 but closes back at 106.50.

Commodity currencies ended off their highs as the stock rally lost steam late and the FT copper story made the rounds. AUD ends at 1.0160 from 1.0203 highs; USD/CAD at 1.0175 from 1.0137 lows.