Here Comes Inflation and Currency Wars

Overnight the PBoC raised their reserve requirement ratio for banks another 50 basis points, the 3rd hike this year and as predicted at the last hike, the third we'd see by March. China is in a 2007 US type scenario and they are moving aggressively to absorb excessive liquidity from their markets as inflation is starting to slip out of their control. One of the reasons I like the short on China through FXP.

Here's what intervention from the Bank of Japan looks like

 And below what it has done to the Eur/USD

Now we wait and see if the Fed retaliates. If so, expect Japan to do everything in their power to keep the USD/JPY over 80.

Oil has hit a temporary bump in the road due to the PBoC's action as spec positions on leverage need to be sold to meet the new RRR, this is a dip in USO that I WOULD buy, it's just a matter of timing it right.

Since nothing happened last night in Libya, the market is set to continue it's bounce, this is good news for us, it gives us some more time. Also the weaker dollar is contributing to the market strength seen in early morning indications.

Watch for airstrikes against Libya today as well. With that prospect plus the possibility of Fed currency intervention, today could shape up to be quite volatile.