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The Euro remained soft in Asian session today, still feeling the weight from Draghi's dovish
press conference. The break of 1.34 in EUR/USD signals a short term topping while EUR/JPY
looks likely to have a deeper pullback. Nonetheless, the current development doesn't warrant a
change in trend yet and we'd tend to treat the pull back as a buying opportunity. Meanwhile,
commodity currencies are soft today, in particular the Australian Dollar as the Reserve Bank
of Australia lowered both its growth and inflation forecast. Chinese trade data provided some
support to Asian equities but not to the Australian Dollar.
The European Central Bank left the main refinancing rate unchanged and announced no new stimulus
program. The overall tone of the statement remained dovish, noting that weakness in the
economy remains. However, recovery would be seen later in 2013 "with domestic demand being
supported by our accommodative monetary policy stance, the improvement in financial markets
confidence and reduced fragmentation, and export growth benefiting from a strengthening
of global demand". The ECB has clearly noticed the strength of the euro but President Draghi
reiterated the position that it is the effect on growth and inflation that will make them
react.
The Reserve Bank of Australia released its quarterly Monetary Policy Statement reducing
its economic growth and inflation forecasts as "mining investment is expected to peak,
both fiscal consolidation and the persistently high level of the Australian dollar will weigh
on growth, and there is little sign of a near-term pick-up in non-mining business investment".
The central bank forecast growth this year would be "below trend", at around 2.5%. CPI
would rise 3% in the year to June 2013. The Reserve Bank forecast that employment growth
would remain "modest over the course of this year, before rising gradually over 2014. The
unemployment rate is expected to edge higher".
China's trade surplus came in wider than expected at 29.15 billion US Dollars in January, down
slightly from December's 31.62 billion. Exports rose 25% year on year, the strongest rise
since April 2001 and well above expectation of 17%. Meanwhile, imports also surged 28.8%
year on year, also beating expectations. The data showed that not only domestic demand
is improving, global demand is recovering too. Other data from China saw CPI drop more
than expected to 2% year on year in January while PPI dropped 2.2% year on year.
Looking ahead, Swiss unemployment, retail sales and German trade balance are the main
focus in the European session. US trade balance and wholesale inventories will be also released.
But the main focus in the US session will be Canadian employment, trade balance and
housing starts.