ECB's Mersch warns against too low rates. Luxembourg's central bank head said he is "skeptical" about the merits of "excessively low interest rates". He added that in his opinion "it would certainly not be an incentive for banks to clean up their balance sheet and thereby could even prolong the difficulties that we have inside the banks". Mersch also stressed that "Europe is mainly a bank financed economy", so that the ECB in his view would with "priority look for measures that would go through the banks, because the most important thing is to revive the banking channel". Mersch also said it is better to steer policy through short term interest rates than the expansion of the bank's balance sheet. It seems after Orphanides seemed to openly break ranks and speak out in favor of low rates, the opposition camp is now also becoming even more vocal, with Germany's Weber yesterday saying that in his view rates should not go down below 1%. Debates at the ECB seem to be getting more heated as the crisis progresses.
Meanwhile, EURUSD is mid-range after it failed to sustain a direction on Tuesday. The pair fell during the Asian afternoon and found a base at 1.2618, where European accounts left bids. Gradual upside bias has seen European highs of 1.2677, but there is a lack ambition. Movement in the crosses are mixed, with EURJPY retracing overnight gains to trade back in to 124.75 versus highs of 125.71, while EURCHF is supported around the mid 1.47's. Elsewhere, EURGBP made another rejection of 0.9250 resistance in Asia, which may fuel profit taking as the recent rally runs out of steam. European equity markets experience selling pressure after Tuesday's strong rally, with investors uncertainty over the sustainability of the upturn. There was relief after Citigroup said it posted a profit in January and February, but sentiment is still weak as the sharp fall in the Chinese surplus is indicative of broadly weak economic fundamentals. In the absence of large flows a 1.2700 option may attract, while intra-day offers are tipped at 1.2700-10 and 1.2730-50 versus good size bids at 1.2600, which are protecting stops below.
