Euro Rebound Continues, More Upside in Near Term

Euro extends this week's broad based rally today and continues to head towards 1.3 against dollar and 100 against yen. Solid bond longer bond auctions yesterday removed the worry on downgrade impact on investor confidence, as least temporarily. Also, markets are hopeful that Greek PSI deal could be reached soon within the week. Short-covering rebound in EUR/AUD and EUR/CAD also gives the recovery added fuel. We'd likely see more upside in European majors in near term, even though, the large down trend is still intact. Current rebound is so far still treated as opportunity to reestablish short position in European majors for the next fall.

It's reported that the progress of Ireland's fiscal consolidation has been ahead of expectations. It has already cut the deficits back below 10% of GDP and was as a result granted more loans by the EU/IMF/ECB troika. However, a concern is that Ireland's economic growth this year may halve the original forecast, making it harder to reach the year-end fiscal target of 8.6% of GDP. Concerning Greece, another Eurozone country that was bailed out, the focus is on the PSI deal. Finance minister Evangelos Venizelos said the discussion has entered the final stage.

Risk appetite remains firm with DOW marching further higher to close at 12623 overnight. DOW is still in progress for a test on 12876 key resistance. Asian equities also extend this week's rally but trading activities are starting to slow ahead of Chinese new year holiday next week. Aussie is not participating in this week's risk rally so far, partly due to weak economic data and partly due to short covering in EUR/AUD. Canadian dollar, on the other hand, also, fails to get out of recent range as WTI crude oil struggles around 100 level.

Data released today saw HSBC China manufacturing PMI stay improved slightly to 48.8 in January. However, as HSBC said, the "third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further, following the sharp drop of 4Q GDP to a three-year low at 8% on a q-o-q seasonally adjusted annualized basis." Australian import price rose 2.5% qoq in Q4, much stronger than expectation of 0.6% qoq. Japan all industrial index dropped -1.1% mom in November. Looking ahead, German PPI UK retail sales, Canadian CPI, wholesale sales and US existing home sales will be featured.