Markets Steadily In Range, Eurozone Rescue Funds And Spain Watched

Markets are pretty steady in range today so far. Dollar index recovered mildly from last week's low but there is no clear strong for further rebound yet.

EUR/USD struggled to take out 1.33 handle for the moment and retreats mildly. The Japanese yen weakens notably after last week's rebound while commodity currencies are slightly softer. Equities are not providing much direction as major Asian indices are nearly flat. Gold is also hovering around 1660 level.

Some consolidative trading would likely be seen today but attention will be paid to eurozone peripheral yields as market's focus are on Spain as well as the conclusion on combining the temporary and permanent eurozone bailout fund later in the week.

EU commissioner for economic and monetary affairs Olli Rehn urged EU leaders to "the comprehensive crisis response" and said there will be a "convincing decision on the reinforcement of the firewalls" this week.

EU finance ministers are expected to meet in Copenhagen on Thursday and Friday to continue to discussion on the arrangement to combine the temporary European Financial Stability Facility and the permanent European Stability Mechanism during the year when they coexist. The EMS will be operational this July while EFSF will end next June.

It's believed that Germany is opted for a so called mid-range option, which is to combine the unused fund of the EFSF after that bailout of Ireland, Greece and Portugal, with the ESM. That would increase the total firepower to EUR 740 billion during the year when both funds run in parallel. The system will fall back to EUR 500 billion in mid-2013. Rehn should believe that it's enough to convince IMF to raise its own resources to $1 trillion.

Italian Prime Minister Mario Monti said that while Spain has made "profound reform of the labor market", he's worried that Spain didn't pay "the same attention to public finances". Monti noted that's a big concern as yields are rising and "it wouldn't take much to recreate trends that could spread to us through contagion". Rehn also noted that there was a "perception" that Spain "was relaxing its fiscal targets for this year". But Rehn remained confident that Spain will meet 2013 deficit target of 3% of GDP. Meanwhile, Spanish Economy minister Luis de Guindos said that Spain is fully committed to meeting its deficit targets and any comparisons to Greece is ”total nonsense“.

BoJ Governor Masaaki Shirakawa said over the weekend that central banks should conduct policy "with the aim of maintaining price stability in the medium to long term". He noted that "excessive focus on short-term inflation development may ultimately result in larger swings in the economy through the buildup and inevitable correction of financial imbalances". Also, Shirakawa warned of the potential impact of low interest rates and noted that "we may have to take into account the risk that a continuation of low interest rates will affect the productivity of the overall economy and lower the growth rate endogenously."

On the data front, New Zealand trade balance came in slightly wider than expected at NZD 161 million in February. German Ifo business climate will be the main focus today and is expected to be unchanged at 109.6 in March. US pending home sales are expected to rise 1.0% mom in February.