Euro In Tight Range, Italian Auction Watched

Euro continues to stay soft in tight range as it stabilized from the steep selloff earlier this week. Markets are clearly concerned about the possibility of prolonged political uncertainties in Italy which poses substantial risk to its structural and fiscal reforms. A key event to watch today is Italy's debt auction and the treasury is expected to sell up to EUR 4b in 10 year bond and EUR 2.5b in 5 year bonds. This will be an important gauge of investors' confidence towards Italy just after the inconclusive election. Euro bears would come back aggressively if we're seeing weak demand or much higher yield in today's auction. Technically, it should also be noted that EUR/USD is holding on to 1.3 key support level for the moment and sustained break there would likely accelerate the decline further.

In US, at the testimony before the Senate yesterday, Fed Chairman Bernanke continued to support the QE measures. He stated that "in the current economic environment, the benefits of asset purchases, and of policy accommodation more generally, are clear". Concerning the costs of the QE program, Bernanke said that the Fed does not "see the potential costs of the increased risk-taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery and more-rapid job creation". He did not mention the chance of reducing monetary easing. Concerning fiscal policy, the Chairman suggested the Congress to "consider replacing the sharp, frontloaded spending cuts required by the sequestration with policies that reduce the federal deficit more gradually in the near term but more substantiality in the longer run".

In Japan, it's reported that prime minister Abe will formally nominate Kuroda as the next BoJ governor, and Iwata as deputy, tomorrow. Markets expect that the team of Kuroda and Iwata to pursue aggressive monetary easing when they come on board in March. And, there could be some eye-catching announcements in April's BoJ meeting. Opposition expressed backing to Kuroda as BoJ governor but there were some reservations on Iwata as deputy. Technically, yen should have bottomed out in near term and we'd expect some more consolidative actions ahead. Probably, recent down trend in yen would resume around early April ahead of Kuroda's first BoJ meeting as governor.

On the data front, New Zealand dollar tumbled as data showed unexpected trade deficit of NZD -305m in January. Japanese retail sales dropped -1.1% yoy in January. Looking ahead, German Gfk consumer sentiment, Swiss KOF, Eurozone confidence indicators, UK GDP will be released. In US, durable goods orders and pending home sales would be featured.