For the 1000 NY/1400GMT cut today….

Nearby ones include:

EUR/USD: 1.3090, 1.3100, 1.3200, 1.3250, 1,.3275

GBP/USD :  1.6030, 1.6150

AUD/USD:  1.0300

USD/JPY; 80.50, 81.00 , 81.25, 82,00

EUR/JPY: 107.00, 107.90. 108.75

BRUSSELS (MNI) – European Central Bank President Mario Draghi on
Wednesday launched a strong defense of the ECB’s Long Term Refinancing
Operations, through which the bank pumped E1 trillion into the European
banking system.

“The LTROs have been quite timely and all in all a successful
operation,” Draghi told the European parliamentarians here. “If the only
thing we managed to get was to buy time, and that’s not all we managed,
that in itself would be an success.”

Hundreds of billions of euros of bank and sovereign bonds needed to
be refinanced at the start of this year when markets were closed and the
LTRO helped avoid a major credit crunch, he said.

Admitting that the ECB would have liked to see more of the E1
trillion in cheap three-year loans it distributed to banks under the two
LTROs trickling through to the real economy, Draghi nevertheless said
that the LTROs helped remove one of the main barriers to lending.

“Banks don’t lend either because they are short of funding, they
are short of capital or there is no demand. We removed the first of the
three factors,” Draghi said.

“We cannot replace the lack of capital or the lack of demand,” he
said, pointing out that about 65% of banks have so far complied with the
targets set by the European Banking Authority.

Results from the ECB’s bank lending survey, published Wednesday,
show that the constraints on bank lending have been eased by the ECB’s
funding and that the main constraint to lending is now poor demand for
credit.

According to the ECB’s estimates, the LTROs resulted in a net
liquidity injection of around E520 billion, once banks’ shifting of
liquidity between operations is considered, Draghi said.

Although this liquidity “is mostly with the ECB” as a matter of
“mathematical, arithmetical fact”, the money “in the mean time has
changed hands,” he said.

The ECB has observed that the portfolio of banks’ government bond
holdings has increased, but “contrary to the general impression,
measures of riskiness between national banks and sovereigns have
decoupled,” Draghi said, adding that they were now “less correlated.”

“The sovereigns and banks are less correlated than they were in
November. This is quite another positive fact that goes against the
general perception,” the ECB president said.

[TOPICS: M$$EC$,M$X$$$,MGX$$$,M$$CR$,MT$$$$]

BRUSSELS (MNI) – The following is the first installment of the
introductory statement by European Central Bank President Mario Draghi
Wednesday morning before the European Parliament’s Economic and Monetary
Affairs Committee:

“Let me first focus on economic and monetary developments in the
euro area since our previous meeting on 19 December last year.

Available indicators for the first quarter of 2012 broadly confirm
a stabilisation in economic activity at a low level. Latest developments
in survey data are mixed, highlighting prevailing uncertainty. Looking
ahead, growth should be supported by foreign demand, the very low
short-term interest rates as well as our non-standard measures. At the
same time, downside risks relate in particular to a renewed
intensification of tensions in euro area sovereign debt markets and
their potential spillover to the real economy. Further increases in
commodity prices may also hamper economic activity.

Euro area annual inflation was 2.7% in March, unchanged from the
previous three months. Inflation is likely to stay above 2% in the
course of this year, because of recent increases in energy prices and
indirect taxes. The Governing Council continues to expect annual
inflation rates to fall below 2% in early 2013.

Looking forward, in an environment of modest growth in the euro
area and well-anchored inflation expectations, underlying price
pressures should remain modest. Risks to the outlook for price
developments are broadly balanced. Upside risks could stem from higher
than expected oil prices and further indirect tax increases; downside
risks could arise from weaker than expected economic activity.

Let me stress that the Governing Council will pay particular
attention to any signs of pass-through from higher energy prices to
wages, profits and general price-setting. It is essential that
medium-term inflation expectations for the euro area economy continue to
be firmly anchored in line with the Governing Council’s aim of
maintaining inflation rates below, but close to, 2% over the medium
term.

The monetary analysis, in particular the subdued pace of underlying
money growth, confirms the prospect of price developments remaining in
line with price stability over the policy-relevant horizon. Money and
credit data up to February point to a stabilisation of financial
conditions. At the same time, the demand for credit remains weak in the
light of still subdued economic activity and the continuing process of
balance sheet adjustment in non-financial sectors.

I consider it of crucial importance that banks strengthen their
resilience further, including by retaining earnings and by retaining
bonus payments. The soundness of banks’ balance sheets will be a key
factor in facilitating both an appropriate provision of credit to the
economy and the normalisation of their funding channels. The
effectiveness of the ECB’s recent non-standard measures

I would now like to turn to the effectiveness of the latest
Eurosystem non-standard monetary policy measures, in particular the
long-term refinancing operations (LTROs).

Let me first of all be clear about why we implemented the
three-year LTROs.

As you will remember, the second half of 2011 was marked by an
intensification of stress in sovereign debt markets and an environment
of high uncertainty. This increasingly hampered the access of euro area
banks to market-based funding. If no action had been taken, this could
have resulted in severe strains on bank lending to firms and households
and a generalised selling of assets.

The LTROs contributed to alleviate these very difficult funding
conditions. Banks could satisfy their additional liquidity needs, which
is reflected by a net liquidity injection of around E520 billion, taking
into account the shifting of liquidity out of other operations.
Moreover, banks have benefited from more certainty about their
medium-term funding due to the longer maturity of the new operations.

I understand that you are particularly interested in the
transmission of the LTROs to the real economy. This is indeed a crucial
point: ensuring that the ECB’s monetary policy continues to be
transmitted effectively to the real economy was a key motivation of the
Governing Council decision. It is encouraging to observe that a very
large number of small banks have participated in the two LTROs. Small
banks are best placed to refinance the real economy, in particular
small- and medium-sized firms which are the biggest generator of
employment in the economy.

We are confident that central bank liquidity has come very close to
the real economy. Of course, this does not mean that this will by itself
boost lending to firms and households. First, the central bank cannot
interfere with the banks’ use of the liquidity since that is their
business decision. But we trust that they will use it to refinance the
real economy because that is the role of a banking system. Second, the
future evolution of credit growth will depend essentially on demand. In
the current environment, this is likely to remain subdued. Thus, money
and credit growth may stay weak for some time before the overall
economic situation improves. The Bank Lending Survey, with some new
information about financing conditions will be published at 10 am this
morning.

Some of you may worry about the possible inflationary risks arising
from these non-standard measures. Let me emphasize that our non-standard
measures are not a constraint on setting interest rates in line with
what is required to ensure price stability in the medium term. In
particular, the interest rate on the 3-year LTROs is not fixed, but
linked to the prevailing main policy interest rate. Furthermore, for
measuring monetary liquidity, it is not the balance sheet of the
Eurosystem that is relevant, but the balance sheet of the banking sector
itself. Only the latter shows the interaction with the real economy. And
this is captured by monetary data and credit data which, as I have
mentioned, are still very subdued. You can rest assured that the
Governing Council will use all the instruments at its disposal to
counter possible upside risks to price stability should they
materialise.

We also hear concerns that the Eurosystem is exposing itself to
excessive risks. I would like to underscore that the expansion of our
balance sheet is being managed with extreme prudence. We continually
review collateral eligibility and our risk control framework.
Furthermore, the application of conservative risk control measures, such
as haircuts, in all monetary policy operations protects the soundness of
the Eurosystem’s financial position.

Let me conclude this point by recalling that all non-standard
measures are temporary in nature. Moreover, liquidity support cannot
substitute for capital or for sound fiscal and structural policies that
bring about sustainable growth and stability in the European economy.”

MORE

–Frankfurt Newsroom, +49-69-720-142; frankfurt@marketnews.com

[TOPICS: M$X$$$,M$$EC$,MT$$$$,M$$CR$,MGX$$$]

For all you EUR/GBP fans out there….fwiw

The mighty Goldman Sachs has apparently recommended selling EUR/GBP at 0.8210/20 with a tight stop of 0.8250 and targeting a move back down to  0.8150/60

Must admit i’m still bearish on this pair for purely selfish reasons, despite the crappy GDP numbers just now.

• Fiscal consolidation is vital in order to restore confidence
• Doesn’t agree with IMF excessivepointing the finger at the EU
• Lending survey results not just down to LTRO, confirms basis of a gradual recovery
• Must be careful not to implement measures too quickly

–Q1 Preliminary GDP -0.2% q/q; unchanged y/y
–GDP data put UK back in technical recession
–Adds National Statistics Officials’ Comments to 0830 GMT Version

LONDON (MNI) – The UK economy fell back into recession in the first
quarter of 2012 as construction output fell sharply and services growth
remained weak, figures released by National Statistics showed Wednesday.

While the Bank of England has been keen to point out it believes
growth will be artificially lower in Q1, pulled down by weak
construction, these figures show more widespread weakness with output
rising only slightly in the service sector.

GDP fell 0.2% on the quarter in Q1 and was unchanged compared to a
year earlier. This was below analysts’ median forecast for a rise of
0.1% on the quarter and followed a 0.3% quarterly drop in Q4 2011,
placing the UK back in technical recession.

Construction output plunged 3% on the quarter, following a fall of
the same magnitude in Q4, knocking 0.2 percentage point off of quarterly
GDP growth. Both the Bank of England and analysts have been puzzled by
the weakness in the sector with the last set of MPC minutes noting, “the
sharp falls in construction output in December and January were
perplexing, and the Committee was minded not to place much weight on
them.”

While the BOE can point to construction as a possible aberration in
the data, concerns remain over the strength of the service sector where
output rose just 0.1% in Q1 on the quarter and by 1% on the year. Growth
here was boosted by transport, storage and communication output which
rose 0.4%. Government output rose 0.2% and distribution, hotels and
restaurants was up 0.1%. Output in the business services and finance
sector fell 0.1% on the quarter.

Industrial production is estimated to have fallen by 0.4% on the
quarter, weaker than most analysts thought, knocking 0.1 percentage
point off quarterly GDP growth. A lot of this weakness was due to lower
oil and gas output and stripping this out would mean GDP fell by 0.1% on
the quarter.

It seems probable that the rate of growth will be revised up over
time. At this stage most of the data is actually forecast by National
Statistics, with only 42% of the figures being made up of hard data.
Survey data from the CIPS pointed to stronger growth in the service
sector with the PMI services index rising to its highest level since Q2
2010 in the first quarter.

The construction data, have also been subject to heavy revision in
the past and some of the Q1 weakness looks likely to be revised away.

The Bank of England is likely to continue to believe underlying
growth in the economy is stronger than the data suggest but this outturn
has come in 0.7 percentage point below their February forecast for a
rise of 0.5% on the quarter. While it doesn’t look as though this will
tip the scales back in favour of more QE at the May MPC meeting, it
causes a serious headache for the BOE and government.

Senior National Statistics officials defended the data in a press
briefing following the publication of the data.

Joe Grice, Chief Statistician at National Statistics, said there
was no reason to believe the construction data were less reliable than
usual.

He said industry returns had been checked and re-checked, as is
customary.

–London newsroom: 44 20 7862 7491; email: puglow@marketnews.com

[TOPICS: MABDS$,M$B$$$,MT$$$$]

– Declining Credit Caused Mainly By Slack Demand, LTROs Have Helped
–Adds More Data From Survey On Loan Demand, Funding Access

FRANKFURT (MNI) – The proportion of banks planning to toughen their
lending conditions declined in the first quarter and will drop even
further in the coming months, according to the European Central Bank’s
Bank Lending Survey, published Wednesday.

The results suggest the ECB’s E1 trillion infusion of three-year
liquidity has helped counter severe credit crunch risks and stimulate
lending.

However, loan demand has contracted substantially and is expected
to remain relatively subdued in the second quarter, suggesting that it
may take some time before the ECB’s flow of cash trickles into the
Eurozone’s faltering economy.

The survey of 131 institutions conducted, between March 23 and
April 5, showed that a net 2% of banks plan to continue tightening
lending conditions to businesses over the coming months, compared to 9%
that reported doing so in the first quarter. Both figures represent a
sharp drop from the 35% reported in the 4Q Bank Lending Survey, which
was mostly conducted before the ECB’s LTROs.

A net 7% of respondents said they would tighten credit standards
for home loans in 2Q, down from 17% in 1Q and 29% in 4Q. A net 6% said
they would do the same for consumer credit, compared to a 5% tightening
reported in 1Q and 13% in 4Q.

The drop in tightening standards in 1Q “was much more pronounced
than anticipated by survey participants at the time of the previous
survey round and mainly reflected milder pressures from cost of funds
and balance sheet constraints, in particular as regards banks’ access to
funding and their liquidity position,” the ECB said.

Euro area banks reported a sizeable drop in the net demand for
loans to non-financial corporations in the first quarter of 2012 (-30%,
from -5% in the fourth quarter of 2011).

“This brought net demand for such loans to a significantly lower
level than had been expected in the fourth quarter of 2011, with the
decline driven in particular by a further sharp drop in financing needs
for fixed investment,” the report said.

The net demand for loans to households declined substantially in
the first quarter. Demand for house purchases dropped by 43% compared to
a more modest fall of 27% in Q4. Demand for consumer credit was down 26%
compared to 16% in the previous quarter.

“For the second quarter of 2012, banks expect much less negative
net demand for loans to households and a rise in demand for corporate
loans,” the ECB said.

Wednesday’s bank lending data had been eagerly anticipated by
markets and policymakers looking to see how much of the ECB’s cheap
three-year loans to the banking sector have filtered through to the real
economy.

The ECB has extended to European banks over E1 trillion of
three-year loans at an interest rate of 1% in a move designed to avert a
severe liquidity crunch in the European banking sector, which has seen
its funding costs soar as the Eurozone’s debt crisis drags on.

Although he has argued that the controversial operations were an
“unquestionable success,” ECB President Mario Draghi has also noted that
the effects of the LTROs were “complicated” and that it would take some
time before they were fully felt.

At the ECB’s monthly press conference in March, Draghi revealed
that an internal ad hoc bank lending survey produced by the central bank
showed bank lending and credit had picked up modestly since the first
LTRO operation of December 21.

Speaking in European Parliament today, Draghi said the results of
the bank lending survey were “encouraging.”

In its April Monthly Bulletin, the ECB said that it saw weak demand
rather than an unwillingness on the part of banks to lend as the main
dampener on lending for the next few months. Leading indicators
suggested poor appetite from both corporations and households, in line
with subdued economic activity, the central bank said.

Nevertheless, the International Monetary Fund warned last week of a
possible massive deleveraging in the European banking sector in which
credit supply could shrink by 1.7% over the next 18 months.

The ECB said in its last monthly bulletin that banks did face some
lending constraints because of the funding environment and new capital
requirements, but it said the LTROs should help. Indeed, today’s bank
lending survey shows that funding access has improved significantly over
the last quarter.

“Regarding banks’ access to retail and wholesale funding in the
first quarter of 2012, improvements were reported across all funding
categories but particularly for debt securities and money markets,” the
survey found. “These developments attest to a substantial positive
impact of the two three-year LTROs on banks’ funding conditions,” it
said.

“Banks’ access to retail funding likewise improved somewhat, albeit
less so, on average, than that to wholesale funding. Looking ahead, euro
area banks expect further – albeit more moderate – improvements in the
conditions for access to wholesale funding in the second quarter of 2012
and only marginal improvements for their retail funding,” the ECB said.

–Frankfurt newsroom, +49-69-720-142; jtreeck@marketnews.com

[TOPICS: M$X$$$,M$$EC$,MGX$$$,M$$CR$]

Around current levels I gather (1.6090/95) , but having little impact at the moment after a recent pull down to 1.6085.  Talk of some more stops sitting down through 1.6070

–Q1 Preliminary GDP -0.2% q/q; unchanged y/y
–GDP data put UK back in technical recession

LONDON (MNI) – The UK economy fell back into recession in the first
quarter of 2012 as a construction output fell sharply and services
growth reamined weak, figures released by National Statistics showed
Wednesday.

While the Bank of England have been keen to point out they believe
growth will be articificially lower in Q1, pulled down by weak
construction, these figures show more widespread weakness with output
rising only slightly in the service sector.

GDP fell 0.2% on the quarter in Q1 and was unchanged compared to a
year earlier. This was below analysts’ median forecast for a rise of
0.1% on the quarter and followed a 0.3% quarterly drop in Q4 2011,
placing the UK back in technical recession.

Construction output plunged 3% on the quarter, following a fall of
the same magnitude in Q4, knocking 0.2 percetage point off of quarterly
GDP growth. Both the Bank of England and analysts have been puzzled by
the weakness in the sector with the last set of MPC minutes noting, “the
sharp falls in construction output in December and January were
perplexing, and the Committee was minded not to place much weight on
them.”

While the BOE can point to construction as a possible abberation in
the data, concerns remain over the strength of the service sector where
output rose just 0.1% in Q1 on the quarter and by 1% on the year. Growth
here was boosted by transport, storage and communication output which
rose 0.4%. Government output rose 0.2% and distribution, hotels and
restaurants was up 0.1%. Output in the business services and finance
sector fell 0.1% on the quarter.

Industrial production is estimated to have fallen by 0.4% on the
quarter, weaker than most analysts thought, knocking 0.1 perentage point
off quarterly GDP growth. A lot of this weakness was due to lower oil
and gas output and stripping this out would mean GDP fell by 0.1% on the
quarter.

It seems probable that the rate of growth will be revised up over
time. At this stage most of the data is actually forecast by National
Statistics, with only 42% of the figures being made up of hard data.
Survey data from the CIPS pointed to stronger growth in the service
sector with the PMI services index rising to its highest level since Q2
2010 in the firsat quarter.

The construction data, have also been subject to heavy revision in
the past and some of the Q1 weakness looks likely to be revised away.

The Bank of England is likely to continue to believe underlying
growth in the economy is stronger than the data suggest but this outturn
has come in 0.7 percentage point below their February forecast for a
rise of 0.5% on the quarter. While it doesn’t look as though this will
tip the scales back in favour of more QE at the May MPC meeting, it
causes a serious headache for the BOE and government.

–London newsroom: 44 20 7862 7491; email: puglow@marketnews.com

[TOPICS: MABDS$,M$B$$$,MT$$$$]

UK DATA: Q1 Preliminary GDP -0.2% q/q; unch. y/y
————————————————————————
The UK economy fell back into recession in the Q1, construction
output fell sharply and services growth reamined weak. While the Bank of
England have been keen to point out they believe growth will be
articificially lower in Q1, pulled down by weak construction, these
figures show more widespread weakness with output rising only slightly
in the service sector. GDP fell 0.2% q/q and was unch y/y below the
median for a 0.1% rise q/q. Construction output plunged 3% but while the
BOE can point to construction as a possible abberation in the data,
concerns remain over the strength of the service sector where output
rose just 0.1% in Q1 q/q. The Bank of England is likely to continue to
believe underlying growth in the economy is stronger than the data
suggest but this outturn has come in 0.7 percentage point below their
February forecast for a rise of 0.5% on the quarter.

Median forecasts were for  +0.1% q/q, +0.3% y/y

So UK now in a  technical recession and cable collapses to  1.6090 from around 1.6140

UK Q1 construction output -3% from -0.2% in Q4 2011- largest drop since Q1 2009, industrial output -0.4% (from -1.3%)

Comments from UK’s Osborne: Abandoning deficit reduction measures would only make UK situation worse. Conditions are very tough and recovery is taking longer than had been envisaged.

BERLIN (MNI) – German Deputy Finance Minister Thomas Steffen said
Wednesday that one should stop debating an increase in firewalls and
rather address the root causes of the Eurozone sovereign debt crisis.

“When the house is burning one needs to fight the fire and not just
discuss firewalls,” Steffen said at an Euromoney conference here. Budget
consolidation and structural reforms are the key to overcoming the
crisis, he argued.

In that regard, the Italian and Spanish governments are currently
“doing a great job,” the deputy minister reckoned.

Steffen said Germany “is not some kind of consolidation Taliban”
and understands that the Eurozone also needs more economic growth.
However, “there is no clear contradiction between fiscal consolidation
and growth,” he reasoned.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

[TOPICS: M$G$$$,MGX$$$,MFX$$$,M$X$$$,M$$CR$]

BRUSSELS (MNI) – The European Central Bank’s ability to purchase
government bonds to help Spain is constrained by the limits of the EU’s
treaties and the central bank’s price stability mandate, ECB President
Mario Draghi said on Wednesday.

“The SMP (Securities and Markets Programme) is neither eternal nor
infinite,” Draghi said at the European Parliament’s Economics and
Monetary Affairs Committee in Brussels, in response to a question from a
Spanish member.

“We should not forget that the ECB has to act within the limits of
its primary mandate and the treaty. The limits of the treaty prohibit
monetary financing. The primary mandate of the ECB is to maintain
primary stability over the medium term for the whole euro area,” he
added.

“We have to walk this thin but delicate balance,” Draghi said,
arguing that it was essential to preserve the credibility of the ECB,
which is “one of the few things left now.”

“Certainly remarkable progress has been achieved and is being
achieved,” Draghi said of Spain’s efforts to restore fiscal health. “The
whole union is close to Spain and certainly the ECB,” he said.

Asked whether the ECB would offer banks a third round of unlimited
cheap three-year loans, Draghi said that he would “never pre-commit.”

–Brussels Bureau, +324-952-28374; pkoh@marketnews.com

[TOPICS: M$X$$$,M$$EC$,MGX$$$,M$$CR$,MT$$$$]

– Declining Credit Caused Mainly By Slack Demand, LTROs Have Helped

FRANKFURT (MNI) – The proportion of banks planning to toughen their
lending conditions declined in the first quarter and will drop even
further in the coming months, according to the European Central Bank’s
Bank Lending Survey, published Wednesday.

The results suggest the ECB’s E1 trillion infusion of three-year
liquidity has helped counter severe credit crunch risks and stimulate
lending.

However, loan demand has contracted substantially and is expected
to remain relatively subdued in the second quarter, suggesting that it
may take some time before the ECB’s flow of cash trickles into the
Eurozone’s faltering economy.

The survey of 131 institutions conducted, between March 23 and
April 5, showed that a net 2% of banks plan to continue tightening
lending conditions to businesses over the coming months, compared to 9%
that reported doing so in the first quarter. Both figures represent a
sharp drop from the 35% reported in the 4Q Bank Lending Survey, which
was mostly conducted before the ECB’s LTROs.

A net 7% of respondents said they would tighten credit standards
for home loans in 2Q, down from 17% in 1Q and 29% in 4Q. A net 6% said
they would do the same for consumer credit, compared to a 5% tightening
reported in 1Q and 13% in 4Q.

The drop in tightening standards in 1Q “was much more pronounced
than anticipated by survey participants at the time of the previous
survey round and mainly reflected milder pressures from cost of funds
and balance sheet constraints, in particular as regards banks’ access to
funding and their liquidity position,” the ECB said.

Euro area banks reported a sizeable drop in the net demand for
loans to non-financial corporations in the first quarter of 2012 (-30%,
from -5% in the fourth quarter of 2011).

“This brought net demand for such loans to a significantly lower
level than had been expected in the fourth quarter of 2011, with the
decline driven in particular by a further sharp drop in financing needs
for fixed investment,” the report said.

MORE

–Frankfurt newsroom, +49-69-720-142; jtreeck@marketnews.com

[TOPICS: M$X$$$,M$$EC$,MGX$$$,M$$CR$]

Morning all…

EUR/USD:  Option strike 1.3200. Offers 1.3215/25 and 1.3235/50 (1.3250 barrier). Bids 1.3180/90, 1.3145/55 and 1.3100/10

GBP/USD: Offers 1.6165/75, barrier at 1.6200. Sell stops down through 1.6120 but bids below 1.6100/10

EUR/GBP:  Offers 0.8185/90 and 0.8205/10.  Bids 0.8145/50

EUR/JPY:  Buy stops 107.80 and 108.00. Sell stops down through 107.00

USD/JPY:  Bids 81.30 down to 81.00. Some sell stops just below with more down through 80.80. Offers 81.50/60, stops just above ahead of more offers starting from 81.75 to 82.00. Buy stops again just above 82.00 and through 82.20

AUD/USD:  Strong offers 1.0340/50, Bids 1.0300/10 and 1.2080/90 (sovereigns, exporters), tech res above at 1.0367 (200 day MA)

USD/CHF: Bids 0.9050 (reportedly from SNB). Offers 0.9140/45 and 0.9170/75

EUR/CHF: 1.2000/10 (SNB bids, offers from 1.2030 up to 1.2050

USD/CAD: tech support 0.9850/60. Sell stops down through 0.9845. Offers 0.9935/45 and 0.9990/00

NZD/USD: Bids from Real money, exporters 0.8080/90, sell stops below. Offers 0.8140/45 and better up at 0.8185/90

Seems market is quietly bullish ahead of the GDP release but getting reports of an Asian sovereign sitting up near the day’s earlier highs of 1.6172.  There’s also a barrier up at 1.6200.

Some  small sell stops down through 1.6120 (Gerry mentioned earlier) ahead of  bids at 1.6100/10

Cable’s at 1.6147

Hearing some talk of Middle eastern names behind the recent push up to 1.3221, but on the flipside also talk of a european sovereign sitting on the offer… all adding to a bit of a stalemate so far this morning.

There are some offers remaining in the 1.3215/25 area  but stronger expected up from 1.3230  to a barrier at 1.3250. on the downside there’s atlk fo bids 1.3180/90 and 1.3145/55

–Side-Effects ‘More Severe’ The Longer Accomodative Policy Remains
–German Fiscal Stimulus Would ‘Jeopardize’ Investor Trust

FRANKFURT (MNI) – Bundesbank board member Andreas Dombret Wednesday
warned that the European Central Bank’s unlimited liquidity provisions
could cause “new financial instability,” while the side effects of its
accommodative monetary policy will become more severe the longer it
remains in place.

Dombret, in prepared remarks for delivery in Berlin, also said
central banks “cannot tolerate” banks and governments delaying reforms
as a result of the liquidity operations. The firewalls put in place will
only “buy time” but cannot substitute for tackling the “root causes” of
the Eurozone’s sovereign debt crisis.

The ECB’s liquidity operations “increasingly serve as a regular
source of funding for banks, and this threatens to replace or displace
private investors,” Dombret said.

“This may give rise to new financial instability if, as a result of
the measures, banks and investors behave carelessly or embark on
unsustained business models — for instance, due to substantial carry
trades,” he said.

Dombret said the ECB’s policy of low interest rates, unlimited
funding through LTROs and financial market intervention “does not come
without side effects — which are all the more severe the longer the
drug is administered.”

The Bundesbank board member also warned that renewed German fiscal
stimulus could “jeopardize” investor trust in Germany, would have only a
minimal effect on peripheral Eurozone economies, and could be “to the
detriment of all parties” by raising bond yields in Germany.

“Weakening Germany’s fiscal position would lead to higher
refinancing costs and therefore either reduce the capacity of the
firewalls or raise the borrowing costs for program countries,” he said

Instead, fiscal consolidation and structural reforms by peripheral
European economies remain key, and will result in the current account
balances of surplus nations like Germany “automatically” adjusting,
Dombret argued.

He also disputed the notion that struggling European economies
should ease off their budget cuts to protect growth, arguing that
frontloaded adjustment — aside from its long-term benefits — could
actually “alleviate” pain in the short term by restoring market
confidence.

“Frontloading reforms and necessary adjustment has proven to be
more successful than protracted adjustment,” he said, adding later:
“Frontloaded, and therefore credible, consolidation actually can help
the economy to grow and reduce the danger of the crisis spreading to the
financial system.

Dombret said temporary deflation in deficit countries is also a
necessary part of the adjustment, but “it is rather a one-off reduction
in prices and wages that is required, not a lasting deflationary
process.”

He said that despite the crisis, the euro “continues to be a strong
currency,” adding that “to some, it actually appears too strong.”

–Frankfurt Bureau, tel: +49-69-720-142, email: frankfurt@marketnews.com

[TOPICS: M$X$$$,M$U$$$,MFX$$$,M$$EC$,M$G$$$,M$$CR$,MGX$$$]

PARIS (MNI) — The European Central Bank’s two long-term financing
operations have given “breathing space” to European banks, but financing
conditions remain challenging, ECB Governing Council member Yves Mersch
said Wednesday.

The governor of the Luxembourg central bank said in the bank’s
Financial Stability Review that the LTROs “have been an opportunity for
banks to clean up their balance sheets and to begin a controlled
deleveraging.”

Mersch added, however, that “the situation of European banks
continues to raise many questions among market participants.” Bank
profitability remains low, risk profiles have been shortened and
provisions for potential losses remain heavy, he noted.

Financing constraints persist as well, Mersch said, given that “the
timid recovery observed in the market for securitized debt remains
insufficient to cover the future needs of credit establishments.”

–Paris newsroom, +33142715540; jduffy@marketnews.com

[TOPICS: M$$CR$,M$X$$$,M$$EC$]

… but some actions will have side effects and ECB’s unlimited  liquidity adding could spark further instability

Recent measures are  not the “new normal”