Euro Rebound Ahead Of Finance Minister Meeting, Dollar Soft

Euro regained some ground against dollar as markets are awaiting Eurozone finance minister meeting in Copenhagen and markets are expecting there will be a final agreement on raising the fire power of the bailout funds. Currently, the combined lending power of the temporary EFSF and the permanent ESM is capped at EUR 500b even though both funds will run in parallel for a year.

According to a draft statement by the press, Eurozone finance ministers would agree to raise the combined firepower to EUR 940b in case of emergency over the next 15 months. Germany is believed to be still opposing to the idea as finance minister Schaeuble said that EUR 800b should be enough. But it's believed that the EUR 940b temporary cap is somewhat a compromise between Germany and other member states.

Spain will be another focus today as prime minister Rajoy is expected to unveil the biggest budget cuts in 30 years. Rajoy has agreed with Eurozone counterparts to lower deficit to 5.3% of GDP this year after some back and forth negotiations. That's a steep improvement comparing to the deficit of 8.5% of GDP in 2011 even though the target was eased from he original agreed 4.4% figure. Nonetheless, the 3.2% o GDP reduction, or at equivalent of EUR 34b, was the biggest since at least 1980. However, the biggest concern is whether Spain is able to implement the deficit cut. Fitch expected Spain's deficit to be at 6% of GDP this year and criticized the target of 3% of GDP in 2013 as "unrealistic".

The Japanese yen retreats mildly as fiscal year end repatriation fades. Japan's Cabinet approved a sales tax proposal today which would double the current 5% sales tax in two stages to 8% in 2014 and 10% by 2015. Prime minister Noda warned that urgent steps are required to ease the debt burden and prevent occurrence of Euro style debt crisis. Currently, around half of Japan's tax income is used to service its debt. And the new borrowing in the fiscal year starting April is expected to exceed tax revenue for the fourth year in a row.

On the data front, New Zealand building permits dropped -6.7% MoM in February. UK Gfk consumer sentiment deteriorated to -31 in March. Japan manufacturing PMI rose to 51.5 in March, unemployment rate dropped to 4.5%, household spending rose 2.4%, national CPI turned positive to 0.1% yoy, housing starts rose 7.5% yoy in February. Swiss KOF leading indicator rose to 0.08 in March. Looking ahead, Eurozone CPI flash, Canada GDP, US personal income and spending, Chicago PMI will be released.