Morning Currency Wrap for Tuesday January 11, 2011

And The Magic Number Is 7  - If your country's sovereign bond yield reaches the 7% mark then your country is headed to debt servitude by way of an EU/IMF forced bailout. This has been the MO, method of operandi, for the European debt crisis. As yields rise the politicians deny, deny, deny, that they have a problem then as soon as that 7% level is reached they are dead because servicing debt at that level is unsustainable. Watch the yield on tomorrow's Portugal bond auction to see what happens next. The Euro did manage to rally overnight after first China (on yesterday's comments) and today Japan pledging  to buy bonds planned by a European rescue fund. These particular bonds are expected to be issued by the European Financial Stability Facility later this month. These bonds will be used to finance Ireland's bailout plan and are rated triple A. Since the bonds are rated triple A this isn't much of a pledge, if they pledged to buy Portugal bonds then that would be something that would support the market, so look for the Euro rally to fizzle - especially due to the heavy schedule of debt issuance by southern European countries this week. In the U.K., the GBP was lower after a report showed retail sales dropped last month as the cold winter weather kept would be shoppers indoors. Evidence that domestic demand is starting to slow down in the U.K. ahead of the planned fiscal austerity measures is not positive for the GBP. In Asia, the AUD continue to take a pounding as the flooding in Australia worsens. Adding insult to injury, Australia's trade surplus narrowed in November more than economists forecast. The Yen was also down slightly with their pledge to support the Euro. Meanwhile, the Chinese Yuan was up on news that China’s foreign exchange reserves climbed by a record last quarter and lending exceeded the government’s annual target, increasing pressure on the central bank to tighten policy to rein in inflation. In Canada, the CAD moved higher as market players move forward possible interest rate increase by the Bank of Canada and moved the target to 2% by the end of 2011. Also adding support to the CAD was firmer commodity prices across the board.