By Greg Peel

The Dow closed down 42 points, or 0.3%, while the S&P lost 0.2% to 1509 and the Nasdaq eased back 0.1%.

Aside from accusations of corruption against the Rajoy government in Spain and the threat of the Berlusconi factor in this month's Italian election, Europe has been quiet these past months. Spain has not, as was anticipated to be all but a given last year, asked for a bail-out. Hence the ECB has not introduced the emergency monetary easing measures it has kept loaded in its gun all this time, and in the meantime the economic data out of Germany, such as the manufacturing and service sector PMIs and business confidence measures, have been surprisingly positive.

Europe has been out of the spotlight, but in the interim the Fed has rolled out QE3 and Japan has moved towards its new policy of unlimited easing. As a result, the euro, which many were still expecting to crumble last year, has been on the rise. Germany, for one, is a leading export economy. The appreciation of the euro, if only by virtue of the depreciation of the dollar and yen, is threatening to nip in the bud any chance of a eurozone recovery.

What to do?

Talk it down. Last night ECB president Mario Draghi, having emerged from the central bank's scheduled monthly monetary policy meeting, suggested to the press that the euro's recent rise is a reflection of improving confidence in the beaten-down currency bloc. However, he also emphasised that the risks remained to the downside. On that note, the euro plunged a percent against the dollar. Draghi has joined the global Currency War. At least verbally. The "race to the bottom" continues, and stock markets are loving it.

Having said that, Wall Street dropped sharply from the open last night, sending the Dow down 132 points by midday. It was not, as one commentator suggested, about sellers. It was about a lack of buyers. The most watched economic data release of the day ? January chain store sales ? was positive. Wall Street is struggling to conquer Dow 14k as buying exhaustion sets in and all talk of a pullback keeps nervous investors at bay.

Those investors have been told, nevertheless, that any pullback will represent a great buying opportunity. How long's a piece of pullback? Seven percent? Five percent? One hundred Dow points? The latter appeared to be the case last night, given the afternoon, for no particular reason, saw the indices recover more than half their losses. If we really are going to see a pullback it will need a trigger. Maybe the Italian election later this month, maybe the US "sequester" (spending cuts) debate next month, maybe the US debt ceiling debate in May, maybe just May. Meanwhile, a definitive push through Dow 14k and S&P 1500 looks like a struggle as well.

The US dollar index has jumped up 0.6% on the euro's drop. Gold fell US$6.00 to US$1671.70/oz, while the Aussie's slide continues, with The Battler down another 0.4% in 24 hours to US$1.0283. Aside from the impact of the stronger greenback, yesterday's unchanged unemployment number belied a fall in the participation rate to historically low levels and a loss of 10,000 full-time jobs, offset only by part-time hiring. It was another economic data point that had forex markets lowering the odds on a March rate cut.

Iran's Ayatollah last night rejected proposals to hold talks with the US on the country's nuclear progress, while in Tunisia ? birthplace of the Arab Spring ? the assassination of a popular opposition party leader added to smouldering MENA tensions. Such tensions were enough to push Brent crude higher by US46c to US$117.30/bbl even as West Texas, which concentrated more specifically on the strong greenback, fell US91c to US$95.71/bbl.

Base metals were slightly weaker last night as we approach Chinese New Year, while iron ore is unchanged at US$155.10/t.

The SPI Overnight fell 8 points.

China will release monthly inflation and trade data today while the local earnings season highlight will be Newcrest ((NCM)).

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