Bond yields are coming into the home stretch a little firmer as investors get a chance to push yields slightly lower in response to in-line data for U.S. and Canadian GDP. Since Eurozone consumer prices also rose at the predicted rate during the month, bond prices have forged ahead. The European bond markets are heading in to a weekend out of which investors are braced for a positive announcement from the EU, Greece and the IMF and one that will likely find German support. But yields this week have been all over the place as volatility stepped up a notch.

European bond markets – German 10-year yields are closing the week six basis points lower at 3.02% having fallen to 2.925% as manic investors sought to buy the securest of European governments bonds. The June bund contract cracked on Thursday after surging midweek but has found its feet on Friday and is higher by 42 ticks at 124.84. The European short end is also displaying a positive bias to close the week. Greek yields by comparison closed at 8.97% and up 31 basis points on the week having reached a panic-extreme at 11.29%. (more…)

Euro 1.3245

Initial support at 1.3115 (Apr 28 low) followed by 1.2965 (Apr 29 2009 low). Initial resistance is now located at 1.3416 (Apr 27 high) followed by 1.3523 (Apr 20 high)

Yen 94.05

Initial support is located at 92.74 (Apr 22 low) followed by 92.25 (38.2% retracement of 88.13 – 94.77). Initial resistance is now at 94.79 (Aug 5 high) followed by 95.29 (Aug 18 High). (more…)

EUR/USD closed higher on Thursday and the mid-range close sets the stage for a steady opening on Friday. Stochastics and the RSI remain neutral to bearish signalling that sideways to lower prices are possible near-term. If it extends last week’s decline, the 87% retracement level of 2009′s rally crossing is the next downside target. Closes above the 10-day moving average crossing are needed to confirm that a short-term low has been posted.

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The dollar declined versus its rivals on Thursday while equity and commodity prices rose on optimism that the EU and IMF are moving toward agreement on a large aid package for Greece. The S&P 500 climbed 15.42 to 1,206.78 on better-than-expected earnings reports. The yen was little changed. The euro gained modestly as fears eased over the fiscal problems of Greece and other countries on the eurozone periphery. Vassilis Papadimitriou, a spokesman for Greek Prime Minister George Papandreou, said Greece is negotiating for a loan worth €120 billion through 2012. Sterling advanced on rising UK home prices. The Australian dollar inched higher. The Australian LEI declined for a second month, reducing risks of an imminent interest-rate hike by the Reserve Bank of Australia. The Canadian dollar was up slightly. Bank of Canada Governor Mark Carney said the BOC’s removal of its conditional commitment to keep rates unchanged at a very low level represents a tightening of monetary policy. He said: ‘Going forward, nothing is pre-ordained. The extent and timing of any additional withdrawal of monetary stimulus will depend on the outlook for economic activity and inflation.’

After breaking its steep uptrend two weeks ago, the dollar index rose 9 out of the last 11 trading days but fell today on easing sovereign default risk. The index is again testing the 82-area resistance. If this is broken, the index will likely surge. However, consolidation between 81 and 82 is possible after strong recent gains.

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The US bond market did a yoyo act again in today’s trading after a successful US 7-year note auction saw yields a couple of basis points below anticipated and a healthy bid-to-cover ratio of 2.82. This took JPY crosses off their highs, but there was no major effect on major currencies as risk appetite was generally positive and irrepressible equity bulls have taken back most of the ground now from Tuesday’s brief meltdown.

EuroZone contagion stops with Spain?

For now, it appears the EuroZone periphery focus may be limited to Greece, Portugal and Spain. That’s because an Italian auction of government securities went off very well today. Italy auctioned EUR 7.7 billion worth of two-, 7-, and 10-year securities out of the target EUR 8 billion. The consensus is clearly that Italian banks have been far less stressed by the trauma of the last couple of years and that a healthier government budget picture (2009 shortfall at -5.3% of GDP compares favorably with rest of developed world) and lower private indebtedness are sufficiently positive counterweights to the scary picture of Italy’s total public debt (estimated at some 115% of GDP). Still, Spain and its other Club Med fiscal basket-cases are sufficiently large that potential sovereign bailout figures are reaching as high as a trillion Euros in some circles.

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• USD: Lower, jobless claims drop, equity markets rally, risk appetites improves on Greek bailout hope
• JPY: Lower, Japanese markets closed for holiday
• EUR: Higher, swift action expected on Greek aid to prevent a Greek debt default
• GBP: Higher, house prices rise, election uncertainty limits gains
• CAD and AUD: AUD & CAD higher, improving risk appetite, crude prices rise above $85 a barrel

Overview

The USD traded lower Thursday pressured by optimism that the EU and IMF are moving more quickly towards agreement on a large aid package for Greece. ECB officials called for quick approval of the Greek aid package to avoid contagion, German SPD party drops its opposition to Greek aid and Greek credit spreads narrowed. USD was also pressured by improving risk appetite as equity markets trade higher in reaction to Greek bailout hopes and Thursdays FOMC policy statement. The FOMC elected to maintain the status quo and was upbeat about the US economic recovery. EUR was also supported by positive economic data as Germany reports a sharp drop in jobless claims and improvement in economic sentiment. GBP traded higher supported by report of rising UK house prices with gains limited by UK election uncertainty. Commodity currencies traded higher supported by improving risk appetite and firmer crude prices. Japanese markets were closed for holiday and the JPY traded lower in reaction to improving risk sentiment. US jobless claims declined .The jobless claims report came in spot on market expectation. Focus turns to Friday’s release of US advanced Q1 GDP and the Greek bailout package.

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Daily FX Report

Good morning from sunny Hamburg and welcome. After Greece and Portugal lost creditworthiness yesterday, Standard and Poor`s downgraded the credit rating of Spain too. The EUR and the GBP dropped versus its most major counterparts. Anyways, we wish you a successful trading day.

Markets review

The EUR continued its downward trend against the most traded counterparts after Standard and Poor`s cut the debt rating of Spain. Yesterday, Standard and Poor`s also reduced the credit rating of Greece and Portugal. Spain is the third country in Europe which lost credit-worthiness. That is a signal that the European deficit crisis is spreading. The EUR traded at its one year low and reached 1.3175 against the USD. The EUR weakened as Germany`s chancellor Angela Merkel pledged in Berlin to step up efforts to overcome the Greece financial crisis. The USD strengthened the most versus the JPY in a month as the Federal Reserve said in its statement that the U.S. labor market is beginning to improve. The USD increased to as much as 1.1% against the JPY and reached 94.32. Also against the EUR, the JPY decreased and lost 1.2% to 124.32.

The NZD dropped versus all of its 16 major counterparts as central bank Governor Alan Bollard indicated he may increase the overnight cash rate at a slower pace than in previous cycles. The NZD slid 0.4% against the USD and traded at 0.7180. Also the JPY gained 0.4% versus the NZD and reached 67.52. The AUD was unchanged against the USD and the JPY. The GBP weakened versus 14 of its 16 major counterparts after the Bank of England said that the U.K. economy remained in a fragile state and inflation is likely to stay under control this year. (more…)

EUR/USD

Current level – 1.3214

EUR/USD is in a downtrend, after peaking at 1.5146 (Nov.25,2009). Technical indicators are neutral, and trading is situated below the 50- and 200-Day SMA, currently projected at 1.4793 and 1.4169.

The rebound from 1.3114 is to be considered corrective in nature, preceding next slide towards 1.30+. Intraday resistance comes at 1.3280-90 and crucial on the 2 h. chart is 1.3416.

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EUR/GBP

Current level – 0.8678

Longer term biasis neutral for the pair, the wide range between 0,8600 and 0,9100 needs resolution.

Intraday:  retreats from almost trendline resistance at 0,8750. Now looking for new bids around short term bullish trendline in 0,8680. Favour the downside.

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There are numerous postings about the US recovery gaining momentum. Monday the USA Today carried an article written by Paul Davidson which states that by any economic measure the US recovery is in full swing. The USA Today report says that factories are humming, the stock market roaring and consumers are spending. The National Association of Business Economists released a report Monday which says that economists they surveyed are optimistic about US growth and job creation and 70% of those polled expect GDP to grow by more than 2% in 2010.Economists Westbury and Stein penned an article in Tuesday’s Forbes edition online warning that as the economy recovers the Fed is losing sight of its main responsibility, price stability. Wesbury and Stein say that retail sales are up 11.6% and housing starts were up 14.1% in the last six months and private payrolls are rising by 49k per month. According to Wesbury and Stein the recovery is faster than expected.

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Euro 1.3190

Initial support at 1.3115 (Apr 28 low) followed by 1.2965 (Apr 29 2009 low). Initial resistance is now located at 1.3416 (Apr 27 high) followed by 1.3523 (Apr 20 high)

Yen 93.90

Initial support is located at 92.74 (Apr 22 low) followed by 92.25 (38.2% retracement of 88.13 – 94.77). Initial resistance is now at 94.79 (Aug 5 high) followed by 95.29 (Aug 18 High).

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• Fed keeps policy measures unchanged, with minimal alterations to statement.
• Growth assessment marginally upgraded, but outlook maintained.
• No changes to inflation paragraph.
• ‘Extended period’ paragraph left unaltered.
• We still expect the Fed to begin removing its accommodation later this year.

Details

The committee was slightly more upbeat in its assessment of growth. Language on consumption, the labour market and housing was upgraded. However, in all cases changes were incremental and came with a cautionary note attached. (more…)

The fear-fuelled rally in (safe) global bond markets came crashing back down to earth in volatile trading midweek after rumors swirled that the IMF might stump up more cash for Athens as part of an expanded rescue package. Meanwhile Messers Strauss Kahn of the IMF and Trichet of the ECB addressed politicians in Berlin as they tried to persuade the Germans that a bailout was necessary and that it needed cash sooner rather than later.

European bond markets – No fun for traders following the double S&P downgrade for both Greek and Portugal sovereign debt. Yields on the Greek two-year surged to around 25% according to Bloomberg news, while borrowing costs in Ireland, Spain, Italy and Portugal all felt the downdraft for Greek bond prices. The premium investors demand for holding Greek over German debt at the 10-year maturity exceeded 800 basis points earlier today. The market meltdown on Tuesday forced regulators in Athens to ban short stock sales.

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FX Highlights

• The USD is trading lower with the EUR rebounding from a one-year low versus the USD supported by report that the EU/IMF plan to take quick action to increase aid to Greece and German officials pledge solidarity with Greece, GBP trades lower pressured by concern about UK sovereign debt rating post UK election, commodity currencies trade higher with the AUD supported by higher Australian CPI and a statement from the RBA assistant governor that EU sovereign debt troubles are not impacting Australia, JPY trades lower pressured by a shift in risk appetite sparked by rumor of larger Greek aid with selling noted in cross trade to EUR and AUD, US stocks set to buck the overnight downturn in European and Asian equities supported by strong earnings at Dow and Shell and anticipation of steady Fed policy (more…)

European debt fears will become more of a dominant influence in the short term and there will be increased fears of a contagion effect spreading to the UK while rumours of a credit-rating downgrade are likely to continue. The political situation will also be closely linked as fears over an indecisive UK election result will also increase doubts whether a government will be able to tackle the debt situation. Sterling will also tend to lose support when there is a wider increase in global risk aversion. Overall, the UK currency is likely to remain on the defensive with the risk of a dip to the 1.4975 area against the dollar while a rating downgrade would be likely to trigger a move to at least 1.47.

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