ECB left rates unchanged at 1.00% as widely expected. President Trichet noted that evidence of short-term inflation pressure, mainly owing to energy prices. But that doesn't affect ECB's assessments. Trichet said that price developments will remain in line with price stability over the policy-relevant horizon even though very close monitoring is warranted.

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Spain managed to sell maximum targeted EUR 3b of five-year bond today with strong demand. The bid-to-cover ratio was at 2.1, higher than 1.6 in previous auction. Yield jumped from prior 3.576% to 4.542% but was below prevailing level of around 4.6% in the secondary market. The auction is viewed as a success and helped boost Euro for further recovery.

Swiss franc, on the other hand, is pressured today after SNB Vice President Thomas Jordan said that appreciation in the franc are posing an extraordinary challenge to the economy. Jordan noted that volatility has strongly increased due to European debt woes and Switzerland has an enormous interest for Europe to solve its debt problems. He also noted that further worsening of the debt crisis would push the franc higher. The contrasting strength of Euro and Swissy sent EUR/CHF sharply higher to above 1.28 level today.

Dollar extends weakness after data showed initial jobless claims jumped back to 445k. PPI rose strongly by 1.1% mom 4.0% yoy in December while core PPI rose 0.2% mom, 1.3% yoy. Trade deficit came in at USD -38.3b versus consensus of USD -41.2b. Other data saw canada trade deficit narrowed to CAD -0.1b in November. UK industrial production and manufacturing production rose 0.4% mom and 0.6% mom in November. Japan machine orders dropped -3.0% mom rose 1.6% yoy in November. Australia job market grew less than expected by 2.3k in December, while unemployment rate dropped to 5.0%.

BoE left bank rate unchanged at 0.5% and size of the APP at GBP 200b as widely expected. The statement is rather short as usual and focus will turn to meeting minutes to be released on January 26.

World Bank warned today that capital flows are posing risks to global growth as they could currency fluctuations that may do lasting damage to some nations. While pickup in international capital flows reinforced the recovery in most developing countries... heavy inflows to certain middle- income economies may carry risks and threaten medium-term recovery, especially if currency values rise suddenly or if asset bubbles emerge.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3014; (P) 1.3079 (R1) 1.3197; More.

EUR/USD surges sharply to as high as 1.3276 so far today. Focus now turns to 1.3433 resistance. Break there will suggest that whole decline from 1.4281 has finished with three waves down to 1.2873. Such development, also, with 1.2643 support intact, will indicate that rebound from 1.1875 is possibly not over yet and stronger rally could then been seen to retest 1.4281 resistance. Nevertheless, before that, another fall is still in favor with 1.3433 resistance intact and below 1.3089 will flip bias back to the downside for 1.2873 and then 1.2643.

In the bigger picture, current development suggests that fall from 1.4281 is still in progress. Also it revives the case that correction from 1.6039 is still in progress for another low below 1.1875. Break of 1.2969 will solidify this bearish case and further break of 1.2643 will confirm and target 1.1875 support first. on the upside, though, break of 1.3496 resistance will mix up the outlook again.

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