Euro Slips With ECB Playing Hardball, Japanese CPI Drops Again

Post-Fed US dollar selling subsided in North American trading as the ECB continues to wrangle with how it will deal with Greek bonds on its balance sheet. On the day, the yen was the top performer while EUR and USD lagged. Japanese annual CPI falls for 3rd straight month. 7 new Premium trades were added 4 hours ago, with 4 charts on Gold, EUR, US crude and Eurozone spreads. Focus on EURUSD, ESH, CLF and gold.

EUR/USD and risk trades received a boost from positive US data on durable goods orders early in US trading. Overall orders climbed 3.0% compared to the 2.0% expected and November data was revised higher. Non-defense orders ex-air rose 2.9% versus the 1.0% consensus.

The figures put an upside bias into GDP figures due on Friday.

At the same time, economic news was salted with disappointments in jobless claims and new home sales. EUR/USD reached 1.3184 as European markets closed but drifted lower afterwards, finishing close to 1.3100.

The ECB and Greek creditors continue to debate about what to do with the 40B euros in Greek sovereign debt held by the ECB. Market participants believe the debt swap will go more smoothly, with less chance of a CDS trigger if the central bank accepts some losses.

Reuters reported that the ECB has ruled out taking any losses but that could set off a legal battle with other creditors. The ECB is split on how to proceed and may forgo its coupons in a bid to placate concerns.

Asia-Pacific Preview

Australia returns from holiday but China remains closed.

Japan Dec core CPI -0.1%. Nov CPI showed the 3rd straight annual decline, at -0.2%. Japan 2011 average core CPI -0.3%.

RBNZ Governor Bollard signalled at the possibility of arate cut, while suggesting the RBNZ has pushed the timing of the next rate hike OCR following disruption to the post-earthquake construction. T

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