EURO: Euro gained yesterday against the USD following a strong bond auction in Portugal & Ireland's decision to split Anglo Irish Bank into a funding bank and an asset recovery bank. It rose above 1.27 levels holding the 21 day EMA resistance(1.2770). Support is seen at 1.2653 levels. We maintain our bearish bias in the pair, thus selling on upticks is recommended. Exporters in EuroInr can look for covers near 60 - 60.50 levels for the near term, whereas the importers can cover here 59 - 59.20 levels for the near-term. Medium term bias: Bearish.

Previous session overview

Renewed threats by Japan's Minister of Finance Yoshihiko Noda to take 'decisive steps' to stop the rise in the yen failed to deter the market Thursday, but they at least stopped traders from pushing the currency to yet another 15-year high against the dollar.

After falling to its lowest level since May 1995 at JPY83.34 yesterday after similar remarks by the finance minister, the dollar managed to stabilize today, briefly climbing above the JPY84 level. At 0450 GMT it was at JPY83.77, from JPY83.92 in late New York trading.

The main economic event today is the Bank of England's interest rate announcement, at noon. We expect both the level of the bank rate and the size of the QE programme to be left unchanged at 0.5% and £200bn, respectively. However, the recent run of poor data, such as the PMI surveys and various housing market indicators, may reignite the debate about whether further policy easing is required to revive a faltering economic recovery. If, as we expect, growth shows sharply in the months ahead then options for further stimulus are likely to start dominating the MPC’s policy agenda. Although today's announcement is unlikely to prompt much market reaction, the minutes of the meeting, published in two weeks' time, could be more eventful, particularly if they show that support for further policy stimulus is growing.

The burning question on investors' minds following the accusation that the Eurozone banking stress tests were flawed was whether or not the immediate shuttering of risk appetite was the start of a bigger meltdown. In overnight currency trading the sensation is that the reaction was overly bearish. The Aussie has swept through the top of its range, while the British pound has spiked higher and the yen is on the wane. No one wants to say it but just perhaps the newspaper accusation that Europe's banks understated their sovereign holdings is little more than a storm in a teacup.