USD/TWD declines

USD/TWD declines in moderate volume, down at 33.816 vs last close 33.888, tracking weaker USD/KRW, gains in stocks (Taiex +0.9%). "Nobody's buying the U.S. dollar, so it's easy to push the Taiwan dollar higher," says trader at government-owned bank. Tips pair in 33.750-33.950 band today.

The $34 billion five-year

The $34 billion five-year Tsy notes to be auctioned at 1 p.m. EDT will entice demand as the pre-auction selling make yields more attractive and as the Fed is committed its bond buying program, traders say. "The market is down and they [the Fed] just took $7.5B securities out of the market so there should be decent interest," says Thomas Roth, head of U.S. government bond trading in New York at Dresdner Kleinwort Securities LLC.

The S&P 500

The S&P 500 is more than 20% off its March 6 low, and has taken out key resistance levels, Brown Brothers Harriman notes; the next key is the "double top," firm says. "The next significant challenge will be breaking the late-January and February double top around 870 as well as the downtrend line drawn off the failed rally peaks of October, November and January," firm writes. On the downside, 760 and 745 are the 38.2% and 50% Fibonacci retracement levels of the rally through Monday's high, and will be important support to hold when the first real pullback sets in."

USD/KRW sustains losses

USD/KRW sustains losses, at 1,394.65 vs 1,412.50 last close, on Kospi gains (last +2.4%), strong foreign interest in local stocks, says local bank trader. Foreigners currently net buyers in stock market, picking up KRW151 billion worth local shares so far today. Tips pair in tight 1,390-1,400 band for rest session; immediate support eyed at 1,390, next at 1,380. Samsung Futures currency analyst Jeon Seung-ji adds, nation's trade surplus so far this month (data from Korea Customs Service shows Korea posted $2.6 billion trade surplus in March 1-20 period), together with widespread expectations that nation will post large trade surplus this month supported KRW in March. USD/KRW climbed as high as 1,534 at end-February.

The South Korean won ended

The South Korean won ended 3% higher Monday to close at a one-month high as offshore market participants dumped the dollar to track regional-market trends, dealers said.   The big question now on everyone's mind is whether the won can sustain its gains, with traders saying that Wall Street's performance will likely hold the key to the domestic currency's fortunes.   The dollar rose to a high of KRW1,488 in early trade, but reversed course to close at its weakest since Feb. 16, when it had closed at KRW1,427.50.   "There appears to have been some offshore players betting on a short-JPY/KRW position by buying the dollar versus the yen and simultaneously selling the dollar against the won," a local bank trader said.   On Tuesday, traders say that market participants will keenly watch whether the dollar will recover support at KRW1,450.   Domestic treasury bonds ended a tad lower following weak results at an auction for KRW800 billion worth of 10-year treasury bonds, which were sold at 4.97%, compared with their close Friday of 4.88%.   The country's chief financial regulator said Monday that money market funds will be required to diversify their holdings into bonds and commercial paper later this year.   These funds must invest at least 40% of their assets in bonds and commercial paper, the Financial Services Commission said in a statement. Funds will be allowed to invest at most 5% of their assets in treasury bonds with maturities ranging from one to five years.   Revising rules to allow investments in long-term securities is a bond-friendly move, but the impact will be likely limited, analysts said.   Money-market funds have frequent deposits and retrievals, and as such, "fund mangers would be reluctant to invest in instruments with such long maturities as five-year treasuries," said Woori Investment & Securities analyst Ough Chang-sup.

Former Fed Gov. Frederic Mishkin

Former Fed Gov. Frederic Mishkin says current environment a good time for derivatives exchange sector, as moving over-the-counter products onto exchange platforms is a viable means of mitigating counterparty risk in the markets. Mishkin, speaking at Futures Industry Association's annual meeting in Boca Raton, Fla., lauded the derivatives industry, saying that futures markets have become a critical means of hedging risk.

A strong performance from equities

A strong performance from equities, helped by the SNB's aggressive QE steps taken Thursday, lifted risk appetite overnight. The DJIA closed up 3.5% and the Nikkei followed with a 5.2% gain, the former also helped by Citigroup saying it didn't need a further capital injection, the latter on talk of another Japanese stimulus package in the wings. EUR/USD printed a 3-week high 1.2946, EUR/JPY a 2-month high of 126..69. The CHF had a quiet night after the SNB's intervention spat Thursday resulted in a near 5% drop in its value against the USD and euro. For Friday, stocks are once again in the driving seat, with European markets positive, but keep an eye on the CHF for further SNB action.

French inflation bounced back

French inflation bounced back in February after falling for several months, but the rebound shouldn't last, as "in months to come, inflation will be dragged down due to important basis effects in the energy sector," BNP Paribas economist Frederique Cerisier says. Also, lower industrial production and overcapacities mean that core inflation will be lower, she says. Says inflation rate in France should turn negative before summer.

With 30-yr mortgage rates 18 BP lower

With 30-yr mortgage rates 18 BP lower last week week at 4.96%, the MBA refinance index was +13.3% at 3470.7 (last week 3063.4) and the purchase index was +7.1% at 253.3. Treasury prices have sold off this week, but mortgage spreads have been tightening on strong buying. Last month, Pimco's Total Return Fund raised its mortgage holdings to 86% from 83%, the highest since at least 1990.

With 30-yr mortgage rates 18 BP lower

With 30-yr mortgage rates 18 BP lower last week week at 4.96%, the MBA refinance index was +13.3% at 3470.7 (last week 3063.4) and the purchase index was +7.1% at 253.3. Treasury prices have sold off this week, but mortgage spreads have been tightening on strong buying. Last month, Pimco's Total Return Fund raised its mortgage holdings to 86% from 83%, the highest since at least 1990.

In the absence of any key euro zone or US data

In the absence of any key euro zone or US data Tuesday risk perception, based on moves in equities, will likely dictate EUR/USD's direction says Commerzbank. Mostly firm equity markets in Asia, combined with EUR/USD's success in holding above the 1.26 area suggest risks for the rate are biased topside, says the bank, although a breakout of the 1.2450-1.29 range is not yet at risk. EUR/USD trades at 1.2706.

The correlation between banking stocks

The correlation between banking stocks and sterling is back on Monday with the major UK bank shares down between 6% and 9% and sterling falling across the board. GBP/USD just made a fresh 5-week low of 1.3942 while EUR/GBP is at a 3-week high of 0.9043.   The central bank doesn't explain changes in its monthly reserves position.

The dollar was down versus the euro

The dollar was down versus the euro but up against the yen Friday in the wake of the February U.S. payrolls report that was dismal but in line with expectations. Trading was mostly driven by profit-taking and adjustments to positions ahead of the weekend, with currencies enduring the customary post-data gyrations. Friday afternoon, the euro was at $1.2666 from $1.2550 late Thursday. The dollar was at Y98.02 from Y97.92, according to EBS. The euro was at Y124.23 from Y122.88. The U.K. pound was at $1.4107 from $1.4122, and the dollar was at CHF1.1552 from CHF1.1700 Thursday.