Euro Extends Rally Against Dollar and Yen

Euro extends it's rally against dollar and yen today and continues to recover against commodity currencies. The G20 meeting in Mexico City at the weekend will be a main focus as European Union leaders would likely call for significant increase in the resources available to the IMF to help the region fight the debt crisis. IMF spokesman said that a global financial fire is needed to protect countries against contagion risks and that include "increase in IMF resources" to "supplement resources that the European authorities would put on the table." China, Japan and Brazil have made clear their willingness to contribute more, but US is still reluctant to commit. The negotiation could likely drag on until at least next meeting in April.

On the other hand, markets are also starting to talk about next week's second long term LTRO from ECB. There are speculations that banks could tap as much as EUR 1T of funds from ECB, which is more than double of the EUR 489b funds borrowed at the first long term LTRO in December. Though, ECB President Draghi expect the second LTRO to be at roughly the same size as the first one.

RBA Governor Stevens said that the benchmark interest rate is "about right for the moment" with "growth near trend, inflation consistent with the target, interest rates about average and an outlook suggesting more of the same". There is no sign of "rapid collapse in global demand" like what they saw three years ago. Stevens noted that “the most recent bout of strength is happening at a time when the terms of trade have actually peaked and started to come down.”

On the data front, Japan corporate service price index dropped -0.2% yoy in January. China conference board leading indicator rose 1.6% in January. Germany and UK will release Q4 GDP revisions today. New home sales will be the main focus in US.