FX Market Unimpressed with Europe

The US dollar is firmer across the board. The deal worked out by Greece and EU/IMF/ECB is helping to ease strains in the European debt market, but does not appear to have dealt a significant blow to those who think that some form of debt restructuring remains. Support for the euro is seen near $1.3200, while resistance in the North American session is in the $1.3250-60 area. Sterling has shown little reaction to the barrage of newspaper endorsements for the Tories or the polls that suggest the Tories have widened the lead to 10 percentage points. Sterling appears comfortable in a $1.5200-$1.5300 range for the very near-term. The dollar held support in front of the 20-day moving average near JPY93.40. Offers are seen in the JPY94.30-40 area.

Many markets were closed in Asia today, including Japan, China, Thailand and the Philippines. The markets that were open generally fell under the weighted of weakness in commodities and financials. The MSCI Asia-Pacific ex-Japan fell 1.1%. Malaysia was the only Asia market that seemed to buck the regional decline as consumer services and industrials offset the other sectors’ losses. News that Australia is going to impose a 40% resource “super-tax” (mid-2012) sent local resource companies lower. In Europe, London is closed, which is saving it from the 0.5% loss on average being seen near midday in Europe. Financials and industrials are the weakest sectors, with the lone sector higher on the day. Athens market begins the new month with around a 1% loss, with consumer goods, industrials and financials the hardest hit. Technology, utilities and health care are higher.

Greek bonds continue to recover. The 10-year yield peaked in the middle of last week near 10% yield (closing basis) and today is near 8.66%, off another 29 bp on the session. Little improvement in other peripheral 10-year bonds. It is in shorter coupons that the easing of anxieties is most clear. The Greek 2-year yield is off 258 bp to 10.04%, while Portugal’s 2-year yield is off 22 bp, Ireland 9 bp and Italy 6 bp. The other important interest rate story is out of China. For the third time this year it raised reserve requirements by 50 bp effective May 10th. A 50 bp increase in reserve requirements drains an estimated CNY300 bln from the banking system.
FX Market Unimpressed with Europe FX Market Unimpressed with Europe Reviewed by Marc Chandler on May 03, 2010 Rating: 5
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