Euro Range Bound, ECB, BoE And Carney Watched

Euro continues to stay in established range ahead of ECB rate decision and press conference today. ECB is expected to leave the main refi rate unchanged while no further no standard programs would be announced. A focus is whether ECB president Draghi would tone down his rhetoric and indicates that that he's still open to further unconventional measures or even rate cut. Another focus would be on Draghi's view on recent strength in Euro.

French president Hollande expressed his concern over Euro's strength earlier this week and urged that Eurozone leaders shouldn't allow euro to fluctuate "according to the mood of the market." However, German Chancellor Merkel's spokesman Seibert noted that exchange-rate policy cannot achieve "sustained competitiveness" and isn't an appropriate instrument. And Seibert noted that the recent gain in euro compensated for a "massive" depreciation during the debt crisis and "that's not such a bad thing". Greek finance minister Stournaras though, said he's concerned about the high level of the euro". Some volatility much be seen in Euro today. But overall, we don't expect any drastic development to change the bullish outlook in the common currency in EUR/USD, EUR/JPY, EUR/GBP, EUR/AUD and EUR/CAD.

BoE will announce its rate decision today and would likely be a non-event as the central bank keeps rates unchanged at 0.50% and asset purchase program at GBP 375b. The main focus would indeed be incoming BoE governor Carney's testimony to parliament's cross party Treasury Committee. Carney surprised the markets last year by advocating nominal GDP targeting, which have the central bank tolerate higher inflation while expanding quantitative easing. Also, he noted that policy in development countries isn't "maxed out" yet. He will likely face some big questions from lawmakers and his responses will be heavily scrutinized by the markets. The committee has already noted that ti will ask if there may be a better monetary policy for UK. We'll pay close attention to whether Carney's comments would trigger another round of selloff in the pound.

In China, PBoC warned in a report that "economic recovery and demand expansion may pass into CPI in a relatively fast manner". The reported noted that "with the help of macro-economic policies, the country is expected to keep stable and relatively fast growth.” Meanwhile, monetary easing in developed countries "may make global capital flows more volatile, push up commodity prices and generate a greater spillover effect on emerging economies". The report signalled that while further monetary easing is possible, the room might be limited.

New Zealand dollar weakened earlier in the session on mixed job data. Employment unexpectedly contracted -1.0% qoq in Q4, versus expectation of 0.4% qoq while unemployment rate dropped more than expected to 6.9%. Australian employment data was solid with 10.4k expansion in Jan while unemployment rate was unchanged at 5.4%. NAB business confidence dropped to -5 in Q4. Japan machine orders rose 2.8% mom in December. Other than ECB, BoE and Carney's testimony, focus will also be on UK productions and trade balance. German industrial production, Canada new housing price index and building permits, UK non farm productivity and initial jobless claims.