The EURO Remains Weak

This morning the euro regained its footing after falling 1.5cents yesterday after the ECB press conference. The euro fell for the first five-day drop in three weeks after ECB President Mario Draghi said recent currency gains may slow inflation and growth, damping demand for the region’s assets. The euro depreciated by 0.9 percent yesterday. The fall in the currency was cushioned as a result of French Trade Balance was at a deficit of 5.3 billion euros in December as against a previous deficit of 4.3 billion euros in November. German Industrial Production increased by 0.3 percent in December from decline of 0.2 percent a month ago. European Minimum Bid Rate was kept unchanged at 0.75 percent in the month of February.

Today’s data showed that China’s exports rose more than estimated in a January that had five more working days than last year, helping sustain a growth rebound. Overseas shipments increased 25% which is higher than the 17.5% median estimate.  Imports rose 28.8%; leaving a trade surplus of $29.15 bn. Economic indicators in the first two months of this year are distorted by the weeklong Lunar New Year holiday.

Japan posted back-to-back monthly current-account deficits for the first time since 1981, highlighting challenges for PM Shinzo Abe’s campaign to revive the economy. The shortfall in the widest measure of the nation’s trade was 264.1 bn yen ($2.8 bn) in December expectations were for a deficit of 144.2 bn yen. The EUR/JPY traded above 126 yesterday but declined to 125.39 as the euro lost its footing.

American consumers are starting to regain confidence as an improving job market eases the strain caused by a higher payroll tax. The Bloomberg Consumer Comfort Index climbed to minus 36.3 in the week ended Feb. 3. Another report showed fewer workers filed claims for jobless benefits last week. US Unemployment Claims declined by 5,000 to 366,000 for the week ending on 1st February from earlier rise of 371,000 in prior week. Prelim Nonfarm Productivity declined by 2 percent in Q4 of 2012 as against a rise of 2.9 percent in Q3 of 2012. Prelim Unit Labor Costs rose by 4.5 percent in last quarter of 2012 as compared to decline of 1.9 percent a quarter ago. The US Dollar Index (DX) gained by 0.6 percent yesterday on account of rise in risk aversion in the global market sentiments which led to rise in demand for the low yielding currency.

Political uncertainty and government officials continue to weigh on the euro. French FinMin Moscovici suggested that euro at current levels shaves 0.3 percentage points off of GDP; however so far Germany has not been as worried. The February 25th Italian election is also a focus, with Silvio Berlusconi appearing to climb in the polls. Entering the EU meetings, Jean Claude Juncker suggested he is hopeful that there will be an agreement on the EU budget.

Today traders will continue to watch the release of Chinese data due shortly along with the US trade balance. Markets are expected to remain quiet with no major reports due in the eurozone.