The Dollar rebounded against majority currencies after two days of losses as US releases service sector data which is expected to grow for a 14th month and yesterday's ADP Employment data showed an increase in hiring by 187,000 jobs. The Dollar also rose as violence erupted in Egypt with reports of gunfire which is prompting risk-averse trading strategy. EURJPY remained strong trading at 112.63 as the ECB meets on its rate decision meeting where President Trichet could signal a willingness to tackle inflation after data showed prices rose across the EU, EURUSD traded at 1.3797 after reaching highs of 1.3862, strongest since Nov. 9, USDJPY traded at 81.63, AUDUSD gained to highs of 1.0121 as building permits rose and trade balance improved, adding signs of improvement.
Japanese markets dropped as earnings reports missed estimates, oil rose on Egypt concerns and commodity prices soared. The Nikkei dropped 0.3% and the Topix dropped 0.35% while most of the Asian exchanges remained closed on account of Lunar New Year. Investors are concerned that the crisis in Egypt where violence erupted yesterday, could spill-over to the oil producing nations, prices of crude could rise which will further increase inflation thereby increasing concerns about the economic scenario of emerging nations.
Building permits in Australia rose 8.7% (prev. -3.9%) while trade surplus was at A$1.98 Billion (exp. A$1.6 Billion) which showed optimism on the economy to improve and could prompt the RBA to increase rates by 25bp in May as jobless rate dropped to 5% but growth could be tempered as Cyclone Yasi could worsen the current flood situation. New Zealand's unemployment rose to 6.8% (exp. 6.5%) in Q4 2010 which saw the Kiwi declining and reducing speculation for an interest rate hike by the RBNZ and shifting any hike to Q3 2011.
Yesterday, Ireland's credit rating was downgraded to A- by S&P with a negative outlook even as Portugal recorded a successful bond auction and Spanish bond auctions along with ECB rate decision are to follow today. The ECB while keeping interest rates unchanged, could see Trichet speaking on the current inflation levels where we expect a hawkish tone as inflation climbed further to 2.4%, well above the 2% target rate. We are waiting to see if Trichet talks on any interest rate moves and any comments on the bond purchase program even as the EU discusses next month's comprehensive package for fund raising.
Today's calendar is filled with service sector data from Germany, EU, UK and the US along with ECB rate decision, Swiss trade balance, EU retail sales and US jobless claims, factory orders and Bernanke's speech.