Sponsors Forex Expos Mid-Day Report: Euro Jumped on LTRO Repayment, Sterling and Canadian Pressured by Data

Euro soared today as ECB said that 278 banks would repay EUR 13.7b, or 30% of the long-term refinancing operation LTRO loan on January 30. That's significantly higher than markets' expectation of around EUR 100b and was seen as a sign of better than expected improvements in the long-troubled Eurozone banking system. In addition, the common currency was supported by better than expected Ifo business confidence data. The German Ifo business climate index rose for the third month to 104.2 in January, up from 102.4 in December. Also, that's the highest level since last June and beat expectation of 103.0. Current assessment rose to 108.0 while expectations gauge rose to 100.5. Both beat market expectations. EUR/USD took out 1.34 level earlier today to resume larger rally and is set to take on 1.3486 resistance next. EUR/JPY also took out 120.70 resistance and is now heading to 123.31 medium term resistance. Euro's strength was also clearly seen elsewhere as EUR/GBP broke 0.85 level. EUR/AUD also took out 1.28 level decisively to resume larger rally to 1.3 psychological level.

Meanwhile, Sterling lagged behind other European majors as Q4 GDP disappointed. The UK economy contracted by -0.3% qoq in Q4, comparing to expectation of -0.1% qoq and 0.9% growth in Q3. The data showed some evidence of fall back fro the boost by Olympic Games in Q3. And it raised concern that UK is heading to a triple dip recession. UK treasury said that the figures reflect that "Britain, like many European countries, faces a very difficult economic situation." Chancellor of the Exchequer Osborne said that the problems UK is facing were "many years in the making and there's no magic solution," and it takes "hard work and perseverance" to bring a lasting recovery.

Canadian dollar suffered additional selling in early US session after weak inflation data. CPI unexpectedly dropped -0.6% mom in December and slowed was unchanged at 0.8% yoy. That compared expectation of an acceleration to 1.2% yoy. Core CPI dropped -0.1% mom and slowed to 1.1% yoy. That's even worse comparing to expectation of an acceleration from 1.2% yoy to 1.4% yoy. The Canadian dollar suffered much selling pressing since BoC statement earlier this week which lowered growth forecasts and said that risk hike is "less imminent". Today's data affirmed this case and without existence of inflation pressure, BoC would very likely stay unchanged for more time.

Yen's selloff extends further today after inflation data and BoJ minutes with USD/JPY and EUR/JPY took out recent highs and psychological level at 90 and 120 respectively. National CPI core dipped -0.2% yoy in December, down from November's -0.1% yoy. The reading stayed negative in seven out of the past eight months with only a 0% reading back in October. The details were even more worrying as persistent deflation pressure was seen in always every category with the core-core measure, which excludes fresh food and energy, was down -0.6% yoy. The data raised expectation that firstly BoJ needs to raise its easing effort and a 2014 plan on open-ended asset purchase is simply not strong enough. Secondly, political pressure on aggressive BoJ easing will certainly be increased in the months ahead.

Meanwhile, the December BoJ minutes showed that a few board members "noted that it was necessary for the BOJ to demonstrate its aim to encourage a further decline in short-term interest rates -- thereby narrowing or reversing interest rate differentials between Japan and other economies -- with a view to exerting influence on foreign exchange rates". And, the members also expressed that "purchases of T-bills should be increased substantially" with one member noting that BoJ should also considering additional purchases of JGBs during the further half of 2013. There was a member proposed to lower the interest paid on excess reserves from 0.1% to 0% and cutting the fixed rate fund rate from 0.1% to 0.03% but that was voted down by other eight members.

IMOH, Patrick E.
+234 803 616 2613
+234 802 846 3657