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Forex Flash: An improvement in Chinese economy may look to contain prices – NAB

China’s monetary aggregates were also released for January, showing a sharp up-tick in credit for the month. While this is a positive sign for credit demand in the economy, it could also partly represent a bringing forward of demand ahead of LNY. Similarly, reports of a clamp down on credit issuance late last year (as some banks approached their credit limits) may have resulted in some pent-up demand as well. According to the NAB Analyst Team, “While the magnitude of these effects is difficult to gauge, they could suggest that the strength in January may not be sustained over coming months.”

It is worth noting that much of the increase in credit demand has been serviced via strong growth in non-bank financing. This is likely to concern authorities, particularly in the face of potential hot money inflows from quantitative easing in developed economies.

Finally, CPI data shows that inflation pressures remain under control, at least for the time being, although the shift of LNY to February will likely see a one-off spike in CPI next month. “With the economy showing signs of improvement, we may start to see attention shifts from supporting the economy to containing prices – a sentiment hinted at with the latest quarterly monetary report from the PBoC.” the team adds.

Forex: EUR/GBP falls on ECB Draghi's speech

The euro is being pressured by ECB's Draghi words as he speaks before the European Parliament. He said the central bank's stance is accomodative and that the exchange rate, while not a policy target, it is important for growth and price stability. Eurozone weakness is expected to continue throughout 2013.
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Fundamental Afternoon Wrap: EUR supported by weak dollar and Japan to resume talk down

As we look across our afternoon institutional research with a close to nonexistent economic calendar today, developments have generally echoed the morning sentiment. namely, little has changed for the Euro and the USD weakness ahead should contribute to supporting an elevated exchange rate. JPY is the other key area of focus, with the almost flippant continuation of talking down the Yen by PM Abe, just days after the G7 & 20 took a lenient stance on Japanese monetary policy.
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