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Forex Flash: Reasons for optimism in Iberia – UB

German Chancellor Angela Merkel did her very best to express support for her beleaguered Spanish counterpart on Monday in Berlin. Although her fiscal prognosis for Spain may be open to question, she did state that 'Spain's exports are posting their best performance for 30 years'. According to Research Analyst Gareth Berry at UBS; “Debatable in practice, basic theory in FX stipulates that improving exports helps the trade balance, and the consequent balance of payments improvements should also help the currency.”

Trade deficits are indeed narrowing sharply and contributing to overall current account gains: Spain's current account deficit is close to a euro-era low, while Portugal's deficit drop is even larger - recovering from -12.6% in Q3 2008 to -2.49% in Q3 last year. Of course, it has taken time for the improvement to actually translate into euro strength.

Initially, fears over current account financing without the ability to devalue risked sending these countries into an outright balance-of-payments crisis. “With official help and of course, domestic austerity, this was averted and largely put a stop to euro buying.” Berry notes.

Forex Flash: RBA steadies rates though future action eyed – NAB

The RBA today kept the cash rate steady at 3.00%, as expected by the market, having cut rates in December. “For us, they have retained an open mind on whether the non-mining sector will fill the void left as resources investment peaks and they also see lower inflation as giving them more scope to ease should that be necessary. We think there will be more easing in the months ahead.” writes the NAB Analyst Team.
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Forex: EUR/JPY rallies above 126.00

The almost 200-pip European morning rally was capped at 125.97 high on EMU PMI data and entered a profit taking stage ahead of EMU retail sales. Then, the market returned to the upside and, after a hard time at breaching the 126.00 mark, the EUR/JPY broke higher. The cross is at 126.33 high, as of writing.
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