Praet Hints at Quantitative Measures

The euro was the best performer last week and that may have encouraged more dovish comments from the ECB's Praet on the weekend. The New Zealand dollar is up nearly a quarter cent to begin the week as the government offloads part of Air New Zealand. Several international housing data points are the early-week highlights with markets off to a quiet start.

ECB chief economist Praet briefly hurt the euro last week talking about quantitative easing and he continued to emphasize the remaining tools in the ECB toolbox on the weekend. He told the German press that 'one has to deploy quantitative measures ' once the zero bound has been reached but he said that 'doesn't have to be' a bond program and could be liquidity injections at banks. For now, he said he doesn't see deflation.

Last week the euro was the best performer while the yen lagged despite Praet's comments. For now, another LTRO looks far more likely than quantitative easing. The undertones in the ECB, however, suggest the strong German influence is waning and that could eventually open the way for more aggressive moves.

The long political career of Silvio Berlusconi is on its last legs after a chief ally abandoned him to form a breakaway party.

Japan 's Sankei newspaper reported Japan's government will compile the second round of its growth strategy in June 2014. That means the BOJ will likely be on its own for the next 9 months, including in April of 2014 when the VAT is set to rise.

The schedule is light to start the new week but housing is in focus with data on Japanese housing loans, UK house prices from Rightmove, Tokyo condo sales and Chinese property prices. Barring a major shock, we don't expect the data to drive any trading.

Commitments of IMM Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR +17K vs +33K prior JPY -95K vs -73K prior GBP -9K vs -2K prior AUD -35K vs -25K prior CAD -16K vs -18K prior NZD +3K vs +8K prior CHF +3K vs +8K prior US Dollar Index longs at 14K vs 8K prior

Betting against the yen was a winner last week but the trade is getting crowded. Because of the heavy and likely growing speculative interest look for yen crosses to gain gradually but correct abruptly. Interestingly, the spec market is still unsure which way to go on cable. If it ever does pick a direction, it will have plenty of fuel.