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Global Macro Research | US JESSICA HOVERSEN jhoversen@mfglobal.com

March 26th, 2010

MF Global Daily Report

MF Global Inc. 440 S. LaSalle 20th Floor Chicago, IL 60605

FOREIGN EXCHANGE | G10

Foreign Exchange Daily Report

General FX Thoughts: The dollar index continued to make 10 month highs yesterday supported by economic fundamentals, the Fed and risk aversion. The US economic data continues to demonstrate that the recovery is intact. Outside of the 439K post in initial claims witnessed in early February, the 442K released yesterday was the lowest seen since July 2009. The claims data is an indication that the labour market is glacially improving. From a bottom up perspective, the release from BBY suggests that there may be some momentum in the consumer sector. The company reported a strong quarter and a bullish outlook. On the Fed front, while the US central bank will surely lag the RBA, RBNZ, Norges Bank and BOC in terms of policy tightening, they will lead the ECB, the BOE and JPY. The Feds rhetoric continues to suggest that they are working toward policy normalization. Yesterday, Bullard noted that the Fed must start strategize asset sales and the fed fund futures have increased the probability that the Fed will tighten policy by 25bps in August to 26.3% from 16.4% one month ago. While MGFR believes that first hike will not be until September at the earliest (more likely later 2010), the change in probability shows that the market is testing the water and may eventually force the hand of the Fed. However, commentary from Bernanke and other statements from Bullard do emphasize the fact that accommodative polices will remain in play for the near-term. This leaves open the possibility that the Fed will keep the extended period language through April; a decision that would be dollar bearish. However, expect that to play a larger role closer to the meeting. Dollar Index: Daily 7/09-3/10

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Though the economic landscape across the global is becoming a brighter shade of grey, risk aversion is still quite present as the market reprices the value of sovereign debt. The 10-yr rate is up almost 30bps this week alone and the 10yr swap spread is negative. The swap market is pricing a downgrade of US credit. Given higher taxes for healthcare, heavy regulation, and more and more government spending, the U.S. government is less credit worthy and the US economys growth potential may be sinking. Just as fears over fiscal sustainability are not singular to the US, neither are negative 10-yr swap to 10-yr sovereign spreads. Data shows that fiscal stress has a direct correlation to the degree of negativity of the swap spread as illustrated by the chart below and based on this observation, the negative US swap spread is in line with the global trend. This graph plots the 10-yr swap-10-soverign spread vs. the budget balance as a percentage of GDP for a selection of advanced economies. The positive correlation of the variables shows that the larger the budget deficit as a percentage of GDP, the more negative the swap spread. Greece and Norway are highlighted on the graph. Notice that they are in opposing quadrants. Norway, with an obviously more attractive fiscal landscape has this highest swap spread out of the selection of countries. Though swap spreads are at historic levels, until the outlook for global fiscal dynamics improves these spreads could stay at historic levels is not contract further.

The perpetuation of the repricing of the outlook for sovereign debt will underpin the USD until the market starts to more acutely monitor the USs balance sheet. The passage of the $940B healthcare will eventually have the market concerned about the ability of the US to service debt and maintain fiscal sustainability. However, with everyone in a Greek state of mind and elections right around the corner in the UK, the manifestation of the markets disdain for heavy government spending in the US ala a dollar sell-off will be delayed. The economic calendar in the US is packed next week with everything from the ISM to non-farm payrolls. Look for the dollar to continue to remain firm as the market expects this round of data to confirm that the trajectory of growth remains intact. The dollar index remains in an upward channel as exhibited by the chart above and MFGR expects the index to try and flirt with the upper bounds.
Copyright by MF Global Inc. (2008) 440 S LaSalle Street. The information contained in this report has been taken from trade and statistical services and other sources which we believe are reliable. MF Global Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. The principals of MF Global and others associated or affiliated with it may recommend or have positions which may not be consistent with the recommendations made. Each of these persons exercises independent judgment in trading, and readers are urged to exercise their own judgment in trading

Global Macro Research | US MF GLOBAL DAILY REPORT | FOREIGN EXCHANGE

EUR: Yesterday a framework was finally agreed upon for Europe which will include IMF loans in addition to bilateral loans to Greece from EU memebers. Leading up to the decision, the divergence over the plan was great but eventually Germans Merkel and Frances Sarkozy got their way with IMF participation. The bilateral loans will be based on each countrys involvement in the ECB. This means that Germany and France will lend the lions share. The EUR/USD reaction suggested that the market disapproved of the IMF involvement. Keep in mind, the connotations of receiving IMF assistance are negative. Outside of the loan Iceland was approved for in late 2008, the last Western European economy to receive IMF assistance was the UK in 1976. MFGR maintains our EUR/USD bearish bias with a Q2 target of 1.3000. However the cross is much oversold and some profit taking is a possibility ahead of the weekend. MFGR favors selling rallies. CHF: EURCHF seems to be stabilizing above 1.4200. The move does seem excessive and Swiss officials are starting to become concerned. Yesterday the Swiss President noted that he is anxious about the recent rise in the CHF. He stated that the decision on intervention is up to the SNB who continued to reiterate that excessive appreciation will be stemmed. The lack of intervention at these levels could truly be a testament to the problems in Europe. It may be conspiracy theory but the SNB may be holding off on intervention as they believe that due to the structural problems both revealed and still hidden in Europe that the EUR/CHF is not yet at equilibrium. The decision not to intervene at these levels may be a clue to the markets that there is worse to come in Europes periphery. GBP: GBP/USD tried to trade firm post the stronger-than-expected GDP numbers, however all gains were surrendered into the US open. MFGR believes that the sell-off was a residual from Wednesdays budget release. Despite the lwoe-than-expected borrowing projections, the market was generally disappointed with the blueprint. Overall, the budget dos not seem to do enough for the UK and Darlings comments seemed more political rather than practical and proactive. PIMCO so disapproved of the budget that they are now favoring bunds over gilts; a statement that speaks to the outlook for the UKs fiscal sustainability. Beyond, the budget, Darling noted that he supports a levy on banks and will push for it at the IMF. Unattractive tax structures will cause capital to exit. MFGR maintains a bearish bias. The cross has broken below the 3/2 low of 1.4855. MFGR would sell a failed rally underneath this level or wait until 1.5038. Keep in mind, much like the EUR, GBP/USD is oversold and some profit taking is a possibility ahead of the weekend. JPY: MFGR is bearish yen and likes buying dip in USD/JPY as we think an uptrend is being established. The following four reasons support MFGRs current bias. 1. Yen LIBOR and TIBOR continue to trend lower 2. Concerns about sovereign fiscal woes are elevated and Japan falls into that category of countries whose balance sheet looks stressed (more so than the USs as their debt to GDP ratio is 183%). 3. Japan continues to pursue simulative monetary policy. We could be finally seeing the repercussions of that decision. 4. The recent round of economic data has been weak. Imports and exports Y/Y are decelerating and the trade surplus is rolling over. Also CPI fell more than expected which supports the case for deflation. AUD&NZD: MFGR still sees upside in AUD as comments from the RBA continue to suggest that the bank is on course for more rate hikes and the economys growth trajectory remains strong. Assistant RBA Governor Philip Lowe said that the RBA will likely raise rates further in the months ahead. He noted that
Copyright by MF Global Inc. (2008) 440 S LaSalle Street. The information contained in this report has been taken from trade and statistical services and other sources which we believe are reliable. MF Global Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. The principals of MF Global and others associated or affiliated with it may recommend or have positions which may not be consistent with the recommendations made. Each of these persons exercises independent judgment in trading, and readers are urged to exercise their own judgment in trading

Global Macro Research | US MF GLOBAL DAILY REPORT | FOREIGN EXCHANGE

the economic outlook is brighter in Australia than other countries and moreover that employment growth is robust. AUD remains sensitive to developments in China and the intensification of a trade war between the US and China could hurt the outlook for global growth and indirectly dampen demand for AUD. A downward trendline has formed from the 11/09 high to the 1/10high and now on the 3/10 high. AUD/USD needs to break through this downward trend line to build momentum to move higher. There is support at the 100-day moving average at .9064 and a break of that price may tempt the cross to test .9000. MFGR would try to buy a bounce off the 100day MA or wait until .9000 to reconsider a long. AUD/USD: Daily 9/09-3/10

CAD: CAD/USD is range trading but MFGR remains a seller with a target of parity. The fiscal situation in Canada is more attractive than it is here in the US and the financial system is sounder. The Canadian 10yr swap spread (swap government debt) is trading a positive 16bps. The economic calendar is empty until next week when the market will digest price numbers and January GDP. GLOBAL ECONOMIC WEEKLY CALENDAR Country Key:
AU BE BZ CA Australia Belgium Brazil Canada CH EC FR GE China EuroZone France Germany IN IR IT JN India Ireland Italy Japan MX NE NO NZ Mexico Netherlands Norway New Zealand RU SW SZ UK & US Russia Sweden Switzerland

Copyright by MF Global Inc. (2008) 440 S LaSalle Street. The information contained in this report has been taken from trade and statistical services and other sources which we believe are reliable. MF Global Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. The principals of MF Global and others associated or affiliated with it may recommend or have positions which may not be consistent with Copyright by MF Global Inc. (2008) 440 S LaSalle Street. The information contained in this report has been taken from trade and statistical services and the recommendations made. Each of these persons exercises independent judgment in trading, and readers are urged to exercise their own judgment in trading.

other sources which we believe are reliable. MF Global Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. The principals of MF Global and others associated or affiliated with it may recommend or have positions which may not be consistent with the recommendations made. Each of these persons exercises independent judgment in trading, and readers are urged to exercise their own judgment in trading

Global Macro Research | US MF GLOBAL DAILY REPORT | FOREIGN EXCHANGE

DATE 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26 3/26

CTY FR SP SP SW NO NO RU UK UK SZ BZ IR US US US US US MX SP SP

CST 2:45 3:00 3:00 3:30 4:00 4:00 4:30 4:30 5:30 6:00 6:00 7:30 7:30 7:30 7:30 8:55 10:00

PERIOD MAR JAN JAN FEB FEB MAR 22-Mar 4Q F 4Q F 26-Mar MAR JAN 4Q T 4Q T 4Q T 4Q T MAR F JAN JAN JAN

RELEASE Consumer Confidence Indicator Mortgages on Houses (YoY) Mortgages-capital loaned (YoY) Trade Balance (Kronor) Credit Indicator Growth (YoY) Unemployment Rate Money Supply Narrow Def.RUB Total Business Investment(QoQ) Total Business Investment(YoY) KOF Institute March Economic Forecst FGV Construction Costs (MoM) Trade Balance: First Estimate GDP QoQ (Annualized) Personal Consumption GDP Price Index Core PCE QoQ U. of Michigan Confidence Global Economic Indicator IGAE Total Housing Permits (MoM) Total Housing Permits (YoY)

MED -32 --8.5B 4.40% 3.20% --5.80% -24.10% --5.90% 1.70% 0.40% 1.60% 73 3.40% ---

PREV -33 -1.30% -17.10% 7.5B 4.20% 3.20% 4.58T -5.80% -24.10% 0.35% 2715M 5.90% 1.70% 0.40% 1.60% 72.5 0.50% -11.50% -44.30%

Copyright by MF Global Inc. (2008) 440 S LaSalle Street. The information contained in this report has been taken from trade and statistical services and other sources which we believe are reliable. MF Global Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. The principals of MF Global and others associated or affiliated with it may recommend or have positions which may not be consistent with the recommendations made. Each of these persons exercises independent judgment in trading, and readers are urged to exercise their own judgment in trading