Dollar Mildly Firmer in Mixed Markets

Dollar is mildly firmer in mixed Asian markets today. DOW breached 12500 psychological level briefly overnight but failed to sustain gain above there. Asian equities are generally firmer but without clear follow through buying. Earlier selloff in the greenback seems to be losing momentum. In particular, EUR/USD and GBP/USD are showing mild sign of weakness as the recovery lost steam. The economic calendar is light today and markets would remain cautiously in range ahead of ECB meeting tomorrow. Bond auctions will also be a major focus in the latter part of the week. Germany will auction EUR 4b of five-year notes today. Spain will auction EUR 5b of 2015, 2016 bonds tomorrow. Italy will also sell EUR 12b of bills.

While Fitch assured France's AAA rating for 2012, it warned that Italy is facing a "significant chance" of downgrade by the end of January. David Riley, head of the sovereign-debt unit at Fitch, said that Italy is the "front line" of Europe's debt crisis and "the future of euro will be decided at the gates of Rome". Meanwhile, at the moment, Riley said there is no credible firewall. Currently Italy, Spain, Belgium, Ireland, Slovenia and Cyrus are on "ratings watch negative" and the eventual downgrade could be up to two notches. Also, markets are awaiting any rating actions from S&P.

German Chancellor Merkel and IMF managing director Lagarde met yesterday on European debt crisis and Greece according to a German spokesman but no detail was released. Lagarde will meet French President Sarkozy today. Merkel will meet with Italian prime minister Monti in Berlin.

On the data front, UK BRC shop price rose 1.7% yoy in December. Japan leading indicator rose to 92.9 in November. Eurozone Q3 final GDP, UK trade balance and Fed's Beige Book will be released later today.