Momentum is building for the Eurogroup to put together a comprehensive rescue package for the EU that will shift the burden of protecting European bond markets from the ECB to the EFSF. Traders think that will allow the ECB to focus on its price stability mandate, potentially hiking rates sometime after mid-year.
Eurozone economic data remains strong. German unemployment dropped to 7.4% (important because Germans will be picking up a very healthy part of the European tab. Manufacturing remains robust. In addition, the market seems content to watchfully wait for an outcome in Egypt (and Yemen, Jordan, Syria…)
US economic data remains in an uptrend and expectations for PMI are robust today. Economists are looking for 58.0 after a 58.5 reading in December. The market is playing the old game of “risk-on” which tends to undermine the need to hold dollars as a safe-haven
Profit-taking (and range trading) among Asian central banks is a theme today. They have been buyers of dips toward 1.3700 and sellers above 1.3760. Stops are rumored in the 1.3780/85 area while 1.3800 barriers are rumored.
