Euro Topped In Short Term, Aussie Lower On RBA

Euro remained soft in Asian session Friday, still feeling the weighed from Draghi's dovish press conference. The break of 1.34 in EUR/USD signals short term topping while EUR/JPY looks likely to have a deeper pullback. Nonetheless, the current development doesn't warrant a change in trend yet and we'd tend to treat the pull back as a buying opportunity. Meanwhile, commodity currencies are soft Friday, in particular in Aussie as RBA lowered both its growth and inflation forecast. China trade data provided some support to Asian equities but not the Aussie.

The ECB left the main refinancing rate unchanged and announced no new stimulus program. The overall tone of the statement remained dovish, noting that weakness in the economy remains. However, recovery would be seen later in 2013 "with domestic demand being supported by our accommodative monetary policy stance, the improvement in financial market confidence and reduced fragmentation, and export growth benefiting from a strengthening of global demand." The ECB has clearly noticed the strength of the euro but President Draghi reiterated the position that it is the effect on growth and inflation that will make them react.

RBA released its quarterly MPS reducing its economic growth and inflation forecasts as "mining investment is expected to peak, both fiscal consolidation and the persistently high level of the Australian dollar will weigh on growth, and there is little sign of a near-term pick-up in non-mining business investment." The central bank forecast growth this year would be "below trend," at around 2.5%. CPI would rise +3% in the year to June 2013. The RBA forecast that employment growth to remain "modest over the course of this year, before rising gradually over 2014. The unemployment rate is expected to edge higher."

China's trade surplus came in wider than expected at USD 29.15b in January, downside slightly from December's USD 31.62b. Exports rose 25.0% yoy, the strongest rise since April 2001 and well above expectation of 17%. Meanwhile, imports also surged 28.8% yoy, also beat expectation. The data showed that not only domestic demand is improving, global demand is recovering too. Other from China saw CPI dropped more than expected to 2.0% yoy in January while PPI dropped to -2.2% yoy.

Looking ahead, Swiss unemployment, retail sales and German trade balance are the main focus in European session. US trade balance and wholesale inventories will be released. But the main focus in US session will be Canadian employment, trade balance and housing starts.