Euro is sold off earlier today on concern that the troubled German lender WestLB is under threat as there's media report that the bank is struggling to come up with a rescue deal before presenting the restructuring plan to European Commission. The new raised doubt on EU's ability to agree on a plan to bolster the EFSF before April. Meanwhile, Portugal reported -0.3% contraction in Q4 GDP, the first quarterly decline in a year, as the government tried to narrow the budget deficit. Investors are also cautious ahead of a meeting between European finance ministers today and tomorrow to review the rules that could force Greece into making unsustainably large spending cuts once its support package runs out in 2013.

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Italy managed to sell close to upper limit of 5- and 30-year bond today, a total of EUR 5.176b. Yields of the five-year BTPs just increased slightly by 0.1% to 3.77% while yield for the 30 year bond was up 0.71% to 5.51%. Bid-to-cover ratios was at 1.4 and 2.05 respectively, which was solid comparing to 1.41 and 1.73 in prior similar auction. The result is considered to be a positive sign of demand in the Eurozone debt markets. Though, main focus will be on the EUR 0.75 to 1b of 12 month Portugal T-bills on Wednesday, as well as the 2020, 2037 bonds from Spain on Thursday.

Japanese GDP contracted -0.3% qoq in Q4, slightly better than expectation of -0.4% qoq. On annualized basis, real GDP dropped -1.1%. GDP deflator dropped more than expected by -1.6% yoy. Contraction in the economy was mainly driven by pull back in domestic as well as overseas demand. Notable contraction was seen in household consumption, which dropped -0.8% qoq, while export dropped -0.7%. Capital spending slowed from Q3 but still managed to grew 0.9% qoq.

New Zealand retail sales dropped sharply by -1.1% mom in December with ex-auto sales dropped -1.2% mom. The data was much weaker than expectation of -0.4% mom and -0.3% mom respectively. Combined with recent soft data, the disappointingly poor sales figure intensified worry that New Zealand is entering into recession again. And RBNZ will likely stand pat at least until the end of Q2.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.3495; (P) 1.3558 (R1) 1.3619; More.

width=272EUR/USD drops further to as low as 1.3449 so far today and at this point, intraday bias remains on the downside for 100% projection at 1.3393 as correction from 1.3860 continues. Nevertheless, outlook in EUR/USD will remain cautiously bullish with 1.3253 cluster support (61.8% retracement of 1.2873 to 1.3860 at 1.3250) intact. Rise from 1.2873 is still expected to resume sooner or later. Above 1.3571 minor resistance will turn bias neutral first. Further break of 1.3743 resistance should bring rally resumption though 1.3860 towards 1.4281 key resistance. But, decisive break of 1.2873 will turn focus back to this low instead.

In the bigger picture, main question remains on whether medium term correction from 1.6039 has finished with three waves down to 1.1875. The firm break above 1.35 psychological level again affirm the case that fall from 1.4281 was merely a correction only and whole rise from 1.1875 is still in progress. Also, note that break of 1.4281 will revive the case that medium term correction from 1.6039 was completed with three waves down to 1.1875 and the long term up trend might be resuming. On the downside, though, below 1.2873 will turn focus back to 1.1875 low.



Economic Indicators Update

21:45NZDRetail Sales M/M Dec-1.10%-0.40%1.50%1.20%
21:45NZDRetail Sales Ex-Auto M/M Dec-1.20%-0.30%-0.20%-0.40%
23:50JPYGDP Q/Q Q4 P-0.30%-0.40%1.10%0.80%
23:50JPYGDP Deflator Y/Y Q4 P-1.60%-1.40%-2.40%-2.10%
0:30AUDHome Loans Dec2.10%1.00%2.50% 
2:00CNYTrade Balance (USD) Jan6.5B10.3B13.1B 
10:00EUREurozone Industrial Production M/M Dec-0.10%-0.20%1.40% 
10:00EUREurozone Industrial Production Y/Y Dec8.00%8.00%7.90%