It also suggests that growth prospects for 2013 may shape up well. In another major development, European leaders agreed to the proposed 7-year budget plan. But there are surely many hindering factors in this continent that still needs to be resolved.
More importantly, there is lot of talk and fear about currency war that is creating uncertainty and imbalance in global economies. This is a vast subject, which is Central Bank's responsibility; but it is worth noting that the governments of developed countries are directly intervening in an effort to weaken their currencies. For years, China has been blamed for artificially keeping its currency weak. About a year ago, Switzerland announced floor at 1.20 levels against Euro to discourage a strong Swiss franc and to support its exports. SNB is often seen in the market offloading Swiss Franc. Few months ago, Japan's government opted for a similar policy to keep its currency weak to create a demand for Japanese products and most recently French President Hollande showed his concern by demanding a stable European currency.
The pressure has been mounting. Keeping in view the global developments, last week ECB president Mario Draghi in his follow-up press appearance after the release of Euro region's monetary policy announcement gave his perspective on many issues.
Draghi has once again played the role of a matured Central Banker with his objective comments that helped halt Euro's rise. If you read the lines, Draghi was smart enough; he was saying, albeit obliquely, that if currency continues to rise policymakers will have to measure its inflationary impact. It will require him to keep the market on toes by saying that he is anticipating at least another interest rate cut within the 1st half of 2013.
He started his press conference by strongly hinting that he would continue with his accommodative stance. The message was enough for the Euro bulls to offload their holdings. He did say that Euro appreciation was a sign of return of confidence and LTRO repayments is a sign of improved sentiments. He cautioned the market by saying that inflation is still high and it may take few months to fall below 2 percent. He added that growth will be largely based on reforms probably linking combination of austerity package that includes spending cuts with better tax reforms to reduce deficit that will certainly delay recovery as he said: "Euro weakness to prevail on early 2013"
He certainly did make a verbal intervention, as he must be quite aware of the business cost and the consequences of excessively high exchange rate. Europe is still on a recovery path. Except for Germany, the rest of the region is yet to make strides and this is just the beginning of German growth recovery, which is at an initial stage; it will largely depend on a global demand and geo-political factors.
I have one more important observation about his response to a query on Japan's stance about a weak Yen policy, he was probably indirectly countering to Japanese government's policy shift in the support of a weak Yen. He said that one of the European officials showing his concern about central bank's independence is genuine and that he strongly supports this view. It all points to a finely balanced approach adopted by the ECB President, which in my view is commendable and in present scenario Euro a band of 1.30-1.40 should be the acceptable level to ECB.
This week European economic data, as always, will be keenly watched. Minus Germany, rest of the region is contracting and is yet to make a comeback. If German economy slows down, this could be bad news for the entire Eurozone economies. More importantly trouble in Spain caused by allegation of corruption charges involving its government could aggravate this country's woes unless Spanish PM Rajoy fulfils his promise to disclose his tax returns and financial assets as quickly as possible. News of former Italian PM Berlusconi's narrowing of gap for coming elections due in two weeks is further upsetting the market because his policies are in negation of current European policymakers' demand.
Meanwhile, in the US, market will be focusing on economic data such as retail sales, export price, business inventories, initial jobless claims, industrial production, capacity utilization and Michigan sentiment that will provide more clue about country's economic recovery prospects.
GOLD @ $ 1667.80 = Gold has once again survived a drop due to political developments in Spain and Italy. The Chinese New Year buyings are over and the US economy is maintaining its growth pace, so in all probability gold may not find enough legs. I would continue to pick the top to sell yellow metal as it has two resistance levels of $ 1678-80 and $ 1690. A break of $ 1655 will encourage for a fall towards $ 1625-35 zones;
EURO @ 1.3366 = Euro's next move could depend on political developments in Euro-zone rather than economic data. 10-year Spanish bond yield and stock market's behaviour could be a trend indicator. If there is a 1.3310 break level, we may see a slide towards 1.3240 zones or 1.3180. However, a 1.3450 break will encourage for a test of 1.3550-80 zones. Range for the week: 1.3150-1.3580;
GBP @ 1.5795 = Bias is on the upside; 1.5650-70 is the strong support levels, which could be tested on a break of 1.5710. A push beyond 1.5880 will encourage for a test of 1.5950. Range for the week: 1.5640-1.5980;
JPY @ 92.60 = A break of 93.10 will encourage for a test of 93.60. See risk - if 91.80 surrenders the move could extend towards 90.50. Range for the week: 90.20-93.80;
AUD @ 1.315-1.0313 = Aussie has a strong support around 1.0220 and only a break of this support level will see a push towards 1.0170. However, AUD has the ability to bounce back from lows; a break of 1.0380-90 will encourage for 1.0440. Range for the week: 1.0170.