• USD: Higher, IMF official says no reason to start shifting reserves away from USD
• JPY: Lower, MOF to intervene if JPY moves become abnormal
• EUR: Lower, EU Q2 GDP revised lower, Lagarde says talk of replacing USD in oil transactions is speculation
• GBP: Lower, consumer confidence rose to its highest level since April 2008
• CAD and AUD: AUD & CAD lower and is, profit-taking emerges as global equity market rally stalls

Overview     
USD posted a modest rebound Wednesday as profit-taking emerged after the JPY rallied to a 9 month high and AUD traded at a fresh 14 month high. The rebound in the USD is attributed to comments from IMF officials that they do not see a reason for a shift out of USD reserves at this time and statement from the French Finance Minister Lagarde that replacing the USD as the global reserve currency is speculation and not on the current agenda. The USD traded sharply lower Tuesday in reaction to reports that oil producer nations are considering replacing the USD for settlement of oil transactions with a basket of currencies. There was also a report Tuesday that the UN is calling for a new global reserve currency to end USD supremacy. USD rebound is also attributed to uncertainty about the risk of intervention from Japan, report of a downgrade of EU Q2 GDP growth and comments from the Fed's Hoenig. Japan's Finance Minister Fujii said that Japan would take action if FX moves become abnormal. The key question is what Japan sees as abnormal price movement in the JPY. EU Q2 GDP was revised to -0.2% from the original report of a 0.1% decline. In addition Swiss unemployment was reported to have risen to a 11 year high. Hoenig said that the Fed will have to remove its very accommodative policy sooner than later.  Noble prize winning economists Stiglitz says that the global recession is far from over. Stilglitz's comments inject a bit of caution into the current optimism about the global recovery. USD is also supported by technicals as the USD approaches extreme oversold levels. Focus turns to Thursday's ECB and BOE central bank policy meetings. The trade will be looking for clues to possible timing of an exit strategy from the ECB and there is uncertainty as to whether the BOE may cut its remuneration rate paid on commercial bank deposits.

Today's US data:
US consumer credit for August will be released after this report is published.

Upcoming US data:
On October 7th August consumer credit will be released expected at seat -8.9 bln compared to -21.6 bln in July. On October 8th initial jobless claims for the week ending 10/03 will be released expected at -545k compared to -551K last week. August wholesale sales and inventories will also be released on October 8th with wholesale sales expected at 0.6% and inventories expected at -0.5%. October 9th August trade balance will be released expected at -32 bln compared to -31.92 bln last month.

JPY
JPY traded at a nine month high versus the USD as Japan signals acceptance of the current level of the JPY. Japan's Finance Minister Fujii said that the current JPY level is consistent with acceptable market activity and that JPY rally reflects weak USD and the impact of low US interest rates. Fuji went on to say that Japan is prepared to intervene if JPY moves become abnormal but it's best to let the markets determine FX levels. Fuji's comments were seen as a signal that Japanese officials are comfortable with JPY strength. In addition the IMF says that JPY strength reflects fundamentals. The trade is likely to continue to test how far Japan is willing to allow the JPY to rise with the key question, what does Japan consider as abnormal price movement for the JPY. We suspect that the risk of intervention from Japan will remain low unless the pace of the JPY rally accelerates. Rumors continue to circulate that the MOF may be bidding for USD/JPY around 8800. JPY rally stalled at this level and the JPY turned lower for the day. There was also report of a defense of 8800 barrier options in the OTC market. JPY price action raises suspicions that the MOF may have been in supporting the USD. 

On October 8th August current account will be released expected at ¥0.12 trln compared to ¥1.27 trln last month.