• Fed’s Kocherlakota says Fed funds rate may need to rise 75 bp by year-end 2011
  • Irish banks need an additional EUR 24 bln in capital after stress tests; banks to be consolidated into two health banks
  • No short-term agreement with ECB for Irish liquidity facility; FinMin hopes for facility in medium-term
  • US weekly jobless claims fall to 388,000 from 391,000
  • Chicago PMI 70.6 from 71.2, holds at historically high level
  • US factory orders fall 0.1% in February
  • KC Fed index rises to 39 in March from 26
  • ECB’s Wellink: Irish banking system a “big black hole”
  • Fed’s Lacker: Less comfortable with consumer inflation expectations
  • S&P 500 falls 0.2% to 1326; rises 5.4% in Q1
  • US yields rise 2 bp to 3.47%
  • oil rises $2.38 to 106.65; agricultural commodities soar

Wow. A busy news session. Scroll down for more headlines that I could not wedge into the wrap-up.

EUR/USD spent a relatively quiet month-end session giving back some of its London gains in New York as the market prepared for the Irish stress tests. The results were ugly but the market was prepared and took the news largely in stride. Late in the session we fell back from the 1.4205/10 area to end the day on the lows for NY just above 1.4150 support as Minneapolis Fed president Kotcherlakota stunned the market by suggesting 75 bp in hikes from the Fed before the end of this year. The market assumed the Fed was prepared to let QE2 end but was surprised by the idea of Fed moderate suggesting a series of hikes in a relatively narrow timeframe.

Major resistance in the 1.4250/80 area once again proved to strong for the sovereign debt impaired euro…

USD/JPY did some backing and filling during US hours before getting a boost late in the day on a report in the Nikkei that the BOJ will pump another JPY 1 trln in cheap loans into the banking system to keep business in the quake zone afloat. Combined with the hawkish Fed comments and it was to new highs on the day at 83.23. 83.30 is important resistance. Stops lie above.

AUD/USD set fresh record highs during the US afternoon at 1.0373 as soaring grain prices and hot Eurozone inflation data spurred global inflation fears. A barrier at 1.0375 held the line. We need at 1.0325 after the hawkish Fed comments took the steam out of the rally.

After being sold against th EUR early in the day, the pound was bought against the dollar for month-end rebalancing, reaching 1.6085 in thin trade. It ends the day at 1.6032, undermined by Kotcherlakota.

With the Fed starting to shift to a more hawkish stance, payrolls take on added importance tomorrow. So long as we get another 200,000 (give or take) new jobs, the market will anticipate the Fed moving to a less accommodative stance in the months to come. Very weak data will push those expectations back out into the future.