• Chinese commerce minister says trade surplus to shrink this year
  • Bank of England’s Bean: Don’t want sterling to strengthen too much
  • Bank of Canada leaves rates unchanged; raises 2009 and 2010 growth outlook
  • Bernanke: Job insecurity, together with declines in home values and tight credit, is likely to limit gains in consumer spending; Unless we demonstrate a strong commitment to fiscal sustainability, we risk having neither financial stability nor durable economic growth
  • CIT: Bankruptcy still an option
  • ECB’s Nowotny: Growth to return in 2010 to unemployment to rise until 2011
  • ECB’s Draghi: Inflation expectations very modest for next 18 months
  • Oil closes up 1.1% at 64.72
  • S&P 500 close up 3.44,new closing high for 2009; Apple, Yahoo report earnings after bell

EUR/USD rallied in early US trade, reaching 1.4277, a new high for the present week-plus old trend, as the reflation trade fired on all cylinders early. Equity prices tested their June highs in the 956 area but fell back from those levels. As equities lost ground, EUR/USD lost altitude. Somewhat dovish comments from Fed Chair Bernanke undermined the reflation trade as he expressed fears that the US consumer will not be a major source of demand in coming months.

USD/JPY and the JPY crosses were sold heavily by a UK name from mid-morning. Prices fell from 94.35 as low as 93.30 before stabilizing just ahead of 93.25 support. The selling was said to be real-money in nature (from asset managers) but it could not be determined whether it was related to Toshin expirations. EUR/JPY’s price action was similar as prices fell from 134.50 to 132.40. USD/JPY ended at 93.60 and EUR/JPY at 132.90.

USD/CAD fell on heavy selling as the Bank of Canada dialed back its rhetoric on the Loonie but prices rebounded in the afternoon from heavily oversold levels. Shorts were squeezed as prices rose above 1.11 from lows at 1.0967.

AUD/USD rallied to a high of 0.8193. into the zone of heavy offers highlighted by Sean in recent sessions. It fell back to 0.8090 during early afternoon as the reflation trade faltered. It rebounded into the close and ended in the high 0.8140s.