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Top Stories

• China's Wen - no need to increase stimulus beyond $800 B
• Currency markets await ECB and BoE
• Equities generally mixed in Asia and Europe
• Oil at $45/bll on Chinese stimulus plan
• Gold bounces slightly to $913/oz holding $900/oz

Overnight Eco

• JPY Capital Spending -17.3% vs. -15.6% forecast
• AUD Building Approvals much lower at -3.7% against 1.4% expected
• AUD Trade Balance bit weaker at .97B vs. 1.1B forecast
• EUR German Retail Sales -0.6% vs. 0.3%
• EUR Revised GDP as expected at -1.5%
• EUR ECB Rate Decision n/a
• GBP BoE Rate Decision n/a

Event Risk on Tap

• CAD Building Permits
• USD Unemployment Claims
• USD Revised Nonfarm Productivity expected at 1.6%
• CAD Ivey PMI expected at 37.5

Price Action

• USD/JPY hits 9970 as 100 within sight
• AUD/USD trades off 6500 to 6415 after weak econ data
• GBP/USD rejects 1.4200 for now ahead of BoE
• EUR/USD pivots 1.2600 as traders await Trichet

Euro was lower in early European trade today dropping below the 1.2600 level ahead of the ECB rate announcement with market participants anticipating a 50bp cut in overnight rates to 1.5%. Traders were also eager to listen to Mr. Trichet’s post announcement  press conference for any clues to future policy moves. In the past week a variety of ECB officials have hinted that the central bank may change its focus away from interest rate policy and towards quantitative easing.

Should Mr. Trichet affirm this shift in approach, the EUR/USD could initially sell off in a knee jerk reaction to the dilutive nature of such action , but then the pair may actually begin to rally, if the market becomes convinced that this fresh course of action could be stimulative to the EZ economy. However, we doubt  that Mr. Trichet will be so forthcoming in his comments today. The ECB continues to view itself  primarily as a guardian of price stability and prefers to leave stimulus decisions to the EZ fiscal authorities.

Nevertheless, the central bank remains the single most powerful policy making institution within the region  and perhaps the only one with centralized authority to impact the overall economy of the 16 member union. Last week-end’s   failed summit pointed  out the weakness of the EZ political structure in being able to combat the growing  economic  crisis spreading across Euroland.  

Today’s German Retail sales report only  reaffirmed  those worries showing  declining demand in the EZ’s largest economy.    As unemployment continues to increase monthly, retail sales in Germany fell by -0.6% against expectations of a rebound of 0.3%.  With little progress on the political front, the markets will want to see a more engaged ECB, but whether Mr. Trichet and company decide to become more assertive in their policy initiatives remains an open question.

Meanwhile, aside for the ECB the market will also get the BoE decision, but unlike the its European counterparts, the MPC members have been much more aggressive in their efforts to ease policy and have openly stated that they intend to pursue quantitative easing as part of their strategy.  With most of the news already well known, the pound has been relatively unaffected by tonight’ s upcoming event risk holding steady at 1.4150.  Therefore as we move forward into the North American open it is the EUR/USD that is likely to display more volatility as currency traders react to Mr. Trichet’ s latest pronouncements.       

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
CAD	13:30	8:30	CAD Building Permits		-3.9%
USD	13:30	8:30	USD Unemployment Claims		667K
USD	13:30	8:30	USD Revised Nonfarm Productivity	1.6%	3.2%
CAD	15:00	10:00	CAD Ivey PMI	37.5	36.1

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.