@import url(/css/cuteeditor.css); Risk FX rallied in Asian session trade boosted by positive comments from PBOC governor Zhou and slightly better than expected data from both Germany and France. PBOC chief Zhou Xiaochuan pledged that the country's central bank will increase its holdings of euro-denominated assets. Zhou noted that China has been a consistent buyer of euro assets and will further increase its holdings, most likely participating through via EFSF, adding that euro can become a bigger and more important reserve currency.
Mr. Zhou's comments reaffirmed China's long standing policy of support for the EUR/USD which it considers to be vital to the country's political and economic goals. As we noted many times in the past, the Chinese are loathe to a see a unipolar world in which the dollar stands as the only reserve currency and there will likely do everything within their power to support the euro as a viable alternative to the greenback.
Meanwhile on the economic front both French and German GDP beat their forecast printing at 0.2% and -0.2% respectively. Although German GDP turned negative for the first time in 11 quarters, the contraction was slightly less than expected as growth was boosted by construction investment. German economic data has improved markedly since the peak of the sovereign debt crisis in Q4 of last year and most analysts now expect growth to return to positive territory in Q1 of this year.
With no additional economic data on the docket currency markets will look to equities and latest headlines from Greece for directional cues today, but if risk sentiment remains positive into the North American open EUR/USD could make another at 1.3200 as it continues to bounce in the 1.3100-1.3300 range seeking a definitive resolution of the crisis in Athens.