Euro Maintains Gain Against Dollar, But EUR/CHF Spirals Lower

Euro is maintaining yesterday's bond auction triggered gain against dollar so far today. But, the strength of rebound is so far limited. Greece is entering the final stage in the discussion with private sector creditors on debt write-down as Prime Minister Papademos said that there will be the "public formal offer" by beginning of February. However, it's remain doubtful if the deal could be finalized that quickly given it's also reported that key areas remain unresolved. And there were talks that if a deal could not be reached 100%, Greek could use the collective-action clause to force a minority of holdout creditors to take losses, or lower the interest rate on bailout loans for Greece to buy back its bonds held by ECB at discounted prices.

While Euro is see strong against most major currencies, EUR/CHF is still spiraling down and breached 1.21 level overnight. There is no announcement yet on replacement for SNB president after Hildebrand's resignation. A supervisory council member said the next SNB president would be found soon, probably in April or May. That's echoed by Swiss President Widmer-Schlumpf. Before that, markets could try to push EUR/CHF lower back towards 1.2 floor set last year to test SNB's determination in defending this level.

In Asia, China's data showed the country's foreign exchange reserves dropped for the first time since 1998. Holding in the world's largest reserve dropped to $3.18b in Q4, slightly down from Q3. It's believed that capital outflows and changes in values of foreign currencies are the factors that dragged down gains in the reserves. Meanwhile, some economists believe that China's external position is almost balanced and Yuan could likely have very slight gains this year. Bank of Korea kept rates unchanged at 3.25% as widely expected.

Looking ahead, UK PPI will be released and is expected to moderate to 9.10% yoy in input PPI and 5.0% yoy in output PPI. Eurozone, Canada and US will release trade balance while US will also release import price index and U of Michigan consumer sentiment. After successful bond auctions in Spain and Italy, markets will also focus on today's EUR 4.75b of longer bond auctions in Italy today.