Dollar rises today on risk aversion as China raised bank reserve requirement for the second time in a month to cool lending. PBoC announced to increase bank's reserve ratio by by +50 bps effective February 25. This is the second time this year the central bank raised banks' reserve ratios as a means to curb lending. On January 12, PBOC increased banks' reserve ratio for the first time since June 2008 as new loans reached a record of RMB 9.59 trillion in 2009. In January, banks in China lent CNY 1.39T, an amount exceeded the total of 4Q09 loans and represented 19% of the CNY 7.5T target set by the government for 2010. Tamer than expected CPI reading in January, by +1.5% yoy, was viewed as a seasonal factor only and it's believed that underlying inflation pressure is still picking up.

Euro was additionally pressured by disappointing GDP data released today and broke recent lower against dollar. Eurozone Q4 GDP grew merely 0.1%^ qoq versus expectation of 0.3%. Year-over-year contraction came in at -2.1%, below expectation of -1.9%. Eurozone industrial production also disappointed the markets by falling -1.7% mom, -5.0% yoy in December. Euro's weakness is felt across the board as investors are still concerned with fiscal problems in Greece, as well as Spain and Portugal, after EU leaders agreed to a rescue package yesterday but released no details.

Other data released so far saw US retail sales rose more than expected by 0.5% in January with ex-auto sales up 0.6%. Japan households confidence improved to 39.0 in January.

Dollar index resumed recent rally by taking out 80.68 resistance and reached 80.75 so far. Sustained trading above 80.68 should set the stage for further rise towards 82.63 medium term resistance next. On the downside, though, a break below 79.57 resistance will now indicate that a short term top is formed and deeper pull back might then be seen towards 76.60/78.45 support zone before staging another rise.

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