The Greenback Remains Resilient As The Bulls Drive Equities Higher

The dollar remains firm against the Japanese yen, straddling the JPY105-level in a subdued activity. It has been confined to a little less than a fifth of a yen inside yesterday's range. Its recovery does not look complete, and the next target is in the JPY105.60-JPY105.70 area. Chunky options at JPY105 expire tomorrow and Friday. The Australian dollar traded on both sides of Monday's range yesterday, but the close was just inside that range. Today it is trading well within yesterday's nearly a cent range (~$0.7565-$0.7660). It is holding above $0.7600 and appears poised to probe a little higher, perhaps toward $0.7640. The PBOC set the dollar's reference rate at CNY6.4669, about 10 pips above the Bloomberg survey models. The PBOC drained a net CNY80 bln (~$12 bln) from the banking system as the overnight repo rate fell sharply (-37 bp to 1.86%, a three-week low). An op-ed in the national paper explained that the PBOC is keeping liquidity "tightly balanced" to prevent risks from leveraging. There is expected to be growing demand for liquidity around the holiday period that begins on February 11. Meanwhile, the dollar is trading in very narrow ranges against the yuan as higher lows, and lower highs are being recorded.  

Europe

Italy's Conte ultimately failed to find the support to lead the third government with the existing parliament. President Matterella is seeking to avoid elections during the public health, economic, and social crisis. Moreover, the enacted political reforms would reduce both chambers by a third, and a new division of responsibilities would take some time when the needs of action are so urgent. A technocrat government, like Monti's in 2011-2013, is the tried and true course. Former Bank of Italy Governor and ECB President Draghi has emerged as the leading candidate.  

The final services and composite PMI from the eurozone were revised slightly higher but not enough to offer much hope that the economy can avoid another quarterly contraction. The service PMI was revised to 45.4 from 45.0, but still off the already depressed 46.4 reading in December. The composite PMI is at 47.8, better than the preliminary estimate of 47.5, yet showing further deterioration after December's 49.1. It has not been above 50 since last September. German services were tweaked lower, but the composite remained at 50.8 (still down from 52.0 in December). French estimates were revised a little high, but the 47.7 composite (49.5 in December) is worrisome. Italy's PMI was higher than expected and higher than December at 44.7 and 47.2 (for services and composite, respectively), but the economy is clearly struggling. Spain is the most worrisome. Its service PMI tumbled to 41.7 from 48, and the composite was dragged down to 43.2 from 48.7.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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