Morning Currency Wrap for Wednesday November 10, 2010

Yesterday's Flash Crash Caused by 30% Hike in Silver Margin Requirements - Yesterday the CME Group it raised its silver futures trading margins by 30% to $6,500 an ounce from $5,000 an ounce effective Wednesday. This caused a knee jerk reaction in the commodity complex, silver futures surged as much as 6% before retreating, with volume rising to an all-time high on Tuesday, boosted by extreme price volatility and possible short covering. Since all commodities are prices in USD, the USD surged as commodities sold off. Today, we should see a snap back in all commodities because anytime the CME raises margins it is a bullish sign. In Asia, China’s currency appreciated as much as 0.2% to 6.6329 per USD, the strongest level since China unified official and market exchange rates at the end of 1993. China also ordered its banks to put more money aside as required reserves, a tightening step that mops up some of the cash that has been streaming into the country and posing a growing inflationary threat. Meanwhile, the Yen was down against the USD as equity markets were up causing the risk trade to be back on after yesterday's run to safe havens. In Europe, the Euro is up off its lows as sovereign debt wows intensified  in Ireland. The fear may be a little overblown here because this is not new news, there is a solution if Ireland needs it with the ECB and the IMF. Real problems could develope for the Euro if Spain runs into trouble. Meanwhile in the UK, the GBP performance was sterling as the Bank of England's quarterly inflation report poured cold water on possible resumption of asset purchases any time soon. Inflation was 3.1% in September, exceeding the government’s 3% limit for a seventh month. In Canada, the CAD surged higher despite news that Canada posted a larger-than-expected trade deficit in September. The trade deficit came in at C$2.49 billion from a revised C$1.49 billion deficit in August as exports to the U.S. tanked and imports climbed to their highest level in nearly two years. The CAD took its cue from U.S. jobless claims, which fell in the latest week, suggesting some stability in the labor sector.