Euro staged a strong rebound earlier after getting boost from ECB council member Yves Mersch's hawkish comments. Mersch said that he wouldn't be surprised at most colleagues concluding that we have upside risks to price stability.And Mersch pointed out that a main question is whether inflation in 2011 is temporary hump or is translating into a plateau and that very much depends on second-round effects. He also hinted that ECB might toughen it's language on the statement next week. ECB will publish new economic projection next week is expected to raise 2011 inflation projection from 1.8% estimate made in December.

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Elsewhere, risk aversion is dominating major financial markets on worry over Libyan unrest. Funds flowed into crude oil and gold, as well as safe currencies like dollar, swissy and yen. Tensions in North Africa and Middle East have escalated this week and worries about contagion to nearby countries elevated. Aussie and Loonie are both weak in spite of strong commodity prices. Kiwi is the weakest currency this week, additionally hurt by earthquake in Christchurch.

New Zealand's second-largest city Christchurch was devastated by a 6.3 magnitude earthquake that killed 65 people at least. There is no full assessment of the damages yet but from television footage, the extent of damage looked more serious than that in September as the latest quake was closer to city center. Investors are worried that the earthquake will add further burden to the economy, which is already weighed down by high debts. Rating agencies are looking in to the situation while markets are now expecting RBNZ to be on hold until 2012.

Moody's lowered Japan's debt rating outlook from stable to negative as the rating agency said economic and fiscal policies may not prove strong enough to achieve the government's deficit reduction target and contain the inexorable rise in debt. Nevertheless, Fitch Ratings affirmed Japan's AA- rating with a stable outlook in an email statement. S&P cut Japan's rating for the first time in nine years to AA- last month, on a par with China.

On the data front, German Gfk consumer sentiment rose to 6 in March. Swiss trade surplus widened to CHF 1.96b in January, UBS consumer indicator dropped to 1.68. UK public sector net borrowing dropped to GBP -5.3b in January. Canada retail sales dropped -0.2% mom in December, with ex-auto sales up 0.6%. US S&P/Case-Shiller 20 cities house price dropped -2.4% yoy in December.

USD/CHF Mid-Day Outlook

Daily Pivots: (S1) 0.9436; (P) 0.9462; (R1) 0.9492; More.

USD/CHF's fall from 0.9774 resumes after brief consolidation and reaches as low as 0.9379 in early US session. Intraday bias is back to the downside for 0.9300/29 support zone. Decisive break there will confirm resumption of medium term down trend. Next short term target will be 100% projection of 1.0065 to 0.9300 from 0.9774 at 0.9009, which coincides with major medium term target. On the upside, above 0.9506 minor resistance will turn bias neutral and bring recovery. But upside should be limited well below 0.9774 resistance and bring another fall.

In the bigger picture, USD/CHF failed to sustain above 55 days EMA again and recent development suggests that price actions from 0.9300 are merely consolidations in the larger down trend. That is, 0.9300 is not yet the bottom. Outlook will now be cautiously bearish as long as 0.9774 resistance holds. Decisive break of 0.9300 will confirm down trend resumption and target 61.8% projection of 1.8305 to 1.1288 from 1.3283 at 0.8946, which is close to 0.9 psychological level.

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Economic Indicators Update

GMTCcyEventsActualConsensusPreviousRevised
02:00NZDRBNZ 2-Year Inflation Expectation Q/Q Q12.60% 2.60% 
07:00EURGerman GfK Consumer Sentiment Mar65.85.7 
07:00CHFTrade Balance (CHF) Jan1.96B1.65B1.28B1.26B
07:00CHFUBS Consumption Indicator Jan1.68 1.841.83
09:30GBPPublic Sector Net Borrowing (GBP) Jan-5.3B-0.7B15.3B 
13:30CADRetail Sales M/M Dec-0.20%-0.10%1.30%1.50%
13:30CADRetail Sales Less Autos M/M Dec0.60%0.60%1.00%0.90%
14:00USDS&P/Case-Shiller Composite-20 Y/Y Dec-2.40%-2.30%-1.59% 
15:00USDConsumer Confidence Feb 6360.6 

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