European markets regain composure; Yen falls ahead of BOJ nomination

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By Chris Gore | February 28, 2013 9:10 AM EST

GoMarkets

European markets regain composure

The greenback was weaker across the board overnight, with global investors seemingly less pessimistic over Italy's political woes. Despite the threat of a lengthy period of political uncertainty in Italy, existing reforms put in place by existing technocrat government led by Mario Monti are expected to remain in place. Amid the political turmoil, Italy was to attract respectable demand for at auction overnight and investors are suitably encouraged by benchmark 10-yr yields managing to remain below the psychologically important 5-percent level. Still, we anticipate the theme of negative contagion will continue to place intermittent pressure on global markets in what could be months of political uncertainty in the region.

Euro recording respectable gains across the board with the most pronounced moves coming from the EURJPY cross, which edged past the 121-figure after falling to 118.77 on Monday.

U.S Markets

Durable goods slid 5.2 percent in January, but investors looked to the underlying figure with durable goods ex-transportation showing respectable growth of 1.9 percent, well ahead of expectations. U.S housing also continues to surprise to the upside with pending home sales jumping 10.4 percent in January.

A series of positive themes kept risk sentiment alive overnight, with a second day of testimony from Fed Chairman Ben Bernanke easing fears the Federal Reserve will begin unwinding asset purchases.

The DOW and S&P finished up 1.31 and 1.38 percent respectively.

Yen falls ahead of BOJ nomination

Meanwhile the Yen eased across the board in response to positive risk trends with the USD-JPY pair breaking the upside of 92-figure once again before running into resistance around the 92.45 level. We've noted a pick-up in short-side positioning from more favorable risk trends and ahead of Prime Minister Abe's Bank of Japan nomination, which is expected to be announced as soon as today. Markets widely expect Abe's nomination for the top job will be Asian Development Bank President Harukiko Kuroda, while news agencies reported overnight Kikuo Iwata will be put forward for the role of Deputy. Both are considered to be pro-stimulus allies of the government and expected to hit the ground running with unconventional easing initiatives designed to kick-start inflation.

Australian dollar

After looking decidedly vulnerable below the 102-figure, the Australian dollar began to crawl higher overnight, coinciding with stronger U.S equities. The local unit fell as far as 101.82 US cents before regaining ground in the latter part of U.S trade.

Besides feedback from Japan, local markets will look to data on the investment intentions of corporate Australia with fourth-quarter private capital expenditure on the docket. Also due for release are data home sales, private sector credit and average weekly wages. All releases will be watch closely in the context of the RBA's next move, therefore a key directive for the Aussie dollar. At the time of writing the Australian dollar is buying 102.3 US cents.

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