The Forex Daily Digest - February 9, 2010

The European Central Bank has confirmed that ECB's President, Jean-Claude Trichet will leave a series of meetings and events in Sydney hosted by the Australian Central Bank earlier than planned in order to attend an informal meeting of European Union leaders in Brussels on Thursday. This month the EUR continues to fall as debt concerns surface in Greece. Last week, the EUR fell to an eight-month low below $1.37 versus the USD as worries rose over the possibility of a default by Greece as well as other debt-burdened southern European economies in Portugal and Spain.

There are members of the ECB who believe that Greece should not be bailed out. Two ECB policymakers said that Greece must get its own house in order itself. ECB Governing Council member Ewald Nowotny said, "The ECB has a clear mandate. We have a clear no-bail out clause." He added that speculation, driven by hedge funds, played a role in the current Greek situation and other peripheral euro zone debt, and said that there should be efforts to restrain those actions.

The EUR traded very close to an eight-month low against the USD on concern this week's European Union summit will fail to address Greece’s fiscal crisis, lessening demand for assets in the region. The EUR was near the weakest in 11 months versus the JPY after EU President Herman Van Rompuy said yesterday Thursday summit will focus on long-term economic strategy, making no direct reference to Greece. The JPY dropped against most of its major counterparts on speculation that importers and traders sold the currency to profit from recent gains.

In a related story, European Commission President Jose Barroso said Europe’s political commitment to the EUR means investors would be mistaken to bet against the EUR as Greece’s budget problems threaten to spread to other countries.

The AUD strengthened from near a four-month low against the USD after central bank Governor Glenn Stevens said holding on to low interest rates for too long might create asset bubbles. The AUD also increased the most in a week against the JPY as Chinese stock markets rallied, boosting demand for higher-yielding assets. The NZD recovered after Prime Minister John Key said the government may lower personal income taxes to support investment and economic growth.

Yuan forwards advanced the most in more than a week on the assumption that increasing inflation and an export recovery will encourage China to allow the yuan to resume appreciation. Local bonds were little changed. The People’s Bank of China sold 24 billion yuan ($3.5 billion) one-year bills at a yield of 1.9264 percent, which was unchanged from the week before. It steered the rate higher twice last month to assist in draining more cash from the money market before keeping it secure.

On Wednesday’s economic calendar look for December’s Trade Balance report, Crude Inventories and the Treasury Budget figures for January. Scheduled earnings include Dean Foods, New York Times, Coca-Cola Enterprise, Sprint-Nextel, Wyndham Worldwide, Allstate, Prudential, and Boston Scientific.

Happy trading,

James Dicks