Euro Extends Losses in Early Asia, BoJ Decision Up Next

The early excitement about a deal in Greece faded in US trading, leaving the euro unchanged on the day. NZD and AUD were easily the top performers while EUR and USD lagged. Australias NAB Coditions Index edges up. Todays Bank of Japan decision comes on the heels of disappointing GDP data. Monday evenings Premium Intermarket insights include EURUSD, GBPJPY, EURGBP, silver, gold and oil.

Its clear that many market participants were waiting for positive headlines in order to initiate fresh euro shorts. The euro opened US trading at 1.3260 but drifted lower throughout the session, finishing near the lows at 1.3187.

The bailout process for Greece is moving forward but not as quickly as the market hoped. The PSI deal is expected to be passed Wednesday but Germany indicated it will not approve bailout funds until early March, once it gauges the take-up in the PSI. The risk is that Greek bondholders dont participate in the PSI because they dont believe the bailout money is forthcoming.

Other European leaders welcomed the deal in Greece but the EUs Rehn continued to press saying he expects he expects more progress in the near future. Also pressuring the euro were Spanish bank downgrades from S&P and Fitch.

US politics were in focus as Obama unveiled a budget with fresh taxation measures to close the budget deficit. Republicans offered to extend the Bush-era tax cuts. The budget optimistically forecasts GDP growth of 2.7% in 2012 and 3.0% next year.

The S&P 500 gained 0.7% to 1352.

Asia-Pacific Preview

National Australian Banks business conditions index rose to +2 in January from zero in December. The Business confidence index rose to +4 from +3 in December but remains below the long-run average of +6 according to MNI.

The top event of the session comes at approximately 0330 GMT when the BOJ announces it latest policies. Yesterdays GDP data showed the economy contracting 0.6% in the fourth quarter, much softer than expected. The soft figures put unexpected pressure on the BOJ to act. Any new action will put downward pressure on the yen but further asset purchases would be particularly negative. There is also talk of an explicit inflation target. Japans Economics Minister called on the BOJ to do more on Monday, a rare push from the government during the two-day meeting.

At 0430 GMT, Japan releases January industrial production data. The consensus is for a 4.0% rise but given the weakness in GDP, the market may have priced in a lower reading.

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