The US dollar got killed as today’s comments from Federal Reserve President Ben Bernanke send expectations for a 50bp rate cut at the end of the month skyrocketing.

Given the sharp drop seen in Ivey PMI, the December labor market readings could be quite disappointing and may lead traders to ramp up speculation that the Bank of Canada will cut rates on January 22.

The feds regard a Sushi Slump, a Japan-like recession, as the Greatest Of All Dangers. They want to avoid it in the worst possible way – by destroying the dollar .

Traders have braced for the worst as rate cut expectations continue to edge higher.

Two major central bank decisions are scheduled to be released, and the results could have a large impact on the markets, particularly in FX.

In terms of real money – gold – oil is still cheap. Then again, in terms of real oil, gold is cheap . In terms of anything real, everything else is realistic. In terms of gold, the ordinary American house is cheaper today than it was five years ago. In terms of oil, the average stock is barely half what it was five years ago. In terms of soybeans, even health insurance is a bargain.

For carry trades to thrive, central banks need to be raising interest rates, volatility needs to be low, traders need to be optimistic and risk appetite needs to be strong. Unfortunately, this does not describe today’s market environment.

AUD/USD appears to be picking up pace to target Fibonacci resistance at 0.8900, and could rally to parity with the US dollar.

US economic data has not fared well as we enter 2008, as last week’s dismal non-farm payrolls reading of 18,000 and jump in the unemployment rate to a two-year high of 5.00 percent points toward a gloomy scenario.

The dollar has rallied, but the latest employment report puts the odds of a recession at more than 50 percent. This may explain why rate cut expectations are continuing to rise.