Euro Firmly in Range as Markets Await ECB LTRO Results

Euro remains cautiously firm against dollar as markets are awaiting ECB to announce the result of the second ultra-long three year LTRO allotment, which should be released at around 1015 GMT. In the first three year LTRO, 523 banks tapped EUR 489b of funds from ECB at interest rate of 1%. Markets are expecting around EUR 400-500b funds to be tapped this time. Around EUR 150b would be rolled over from other existing facilities maturing this week. Hence, the total increase in liquidity could be around EUR 250-350b. around 10% of ECB's current balance sheet.

The interpretation of the result is a bit complicated. On the one hand, markets would like to see more funds allotted and thus, more funds would be channeled into risk markets. On the other hand, markets would worry that large allotment would mean that banks are still starving for liquidity. It's believed that anything between EUR 300b and EUR 500b would be neutral and between 500b - EUR 1000b would be risk and Euro positive and near term. Otherwise, the result could be risk and euro negative. So far, EUR/USD is still staying in range below 1.35 level and is reflecting the hesitation to commit to any direction yet.

Another focus today is Bernanke's testimony to Congress. In January, Fed surprised markets by announcing to maintain the ZIRP until 2014. Bernanke will likely maintain this message even though recent economic data showed improvements.

On the data front, New Zealand building permits rose 8.3% mom in January, NBNZ business confidence improved to 28 in February. Australia retail sales rose 0.3% mom in January. Both Aussie and Kiwi are lifted mildly by the solid data. Japan manufacturing PMI dropped slightly to 50.5 in February, industrial production rose 2.0% mom in January, housing starts dropped -1/1% yoy in January. UK Gfk consumer sentiment was unchanged at -29 in February. Swiss KOF, German unemployment, UK mortgage approvals, M4, Eurozone CPI, US GDP revision and Chicago PMI will be released later today.

NZD/USD's break of 0.8428 resistance suggests that rebound from 0.7370 has resumed. Near term outlook will remains bullish as long as 0.8244 support holds and further rally is expected. Choppy correction from 0.8842 should have completed at 0.7370 already. Rise from there should target a test on 0.8842. Nonetheless, note that daily MACD has been staying below signal line for sometime, reflecting weak upside momentum. NZD/USD could face some resistance between 0.8572/8842 and make a short term top there.

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