Euro Firm As EU Set To Boost Bailout Fund To EUR 940B

Euro remains generally firm before EU finance ministers meet in Copenhagen tomorrow to decide on the way to combine the temporary EFSF and ESM during the one year period of parallel run. It's reported that according to a draft statement for the meeting, EU finance ministers are preparing to raise to total firepower of the bailout funds to as high as EUR 940. That including combining the EUR 500b ESM with EUR 200b committed by the EFSF.

Additional EUR 240 from the EFSF could be tapped "in exceptional circumstances following a unanimous decision of euro-area heads of state or government notably in case the ESM capacity would prove insufficient". As the EFSF expires in mid-2013, the permanent bailout ceiling would revert to EUR 700b. The plan is expected to be approved by EU finance ministers during the weekend and would provide some support to the common currency.

Before that, focus will be on Italy's bond auction today. Italy will sell up to EUR 5.75b in 2017- and 2022 bonds with fixed rate coupon and up to EUR 2.5b in floating rate bonds today. Markets reaction to the inflation-linked bonds was rather unwell earlier this week b ut that was offset by yesterday's sale of six-month bills. Today's auction result might trigger some volatility.

Aussie remains soft after Treasurer Swan said that deeper spending cuts are needed to move budget back to surplus by next year. There Swan said there will be substantial revenue writedowns in the 2012-13 budget and "collections particularly relating to company profits, have been lower than expected". Swan also noted that profits in manufacturing, retail and tourism have been hit by high exchange rates. Meanwhile, the Aussie is also continuing to be pressured by China slowdown worry.

On the data front, Japan retail sales rose more than expected by 3.5% yoy in February. New Zealand NBNZ business confidence improved to 33.8 in March. German unemployment and Eurozone confidence indicators will be the major focus in European session. US Q4 GDP final, initial jobless claims and Canadian IPPI and RMPI will be released.