08:38 am - Data Reaction: Treasuries slipped to their worst levels of the session ahead of this morning’s data, but have ticked off their lows after the weaker than expected readings. Maturities across the complex tread in negative territory as the long bond trades down 13/32 at 103 02/32 and the 10-yr is off 5/32 at 99 25/32. The pre-data selling saw the 10-yr yield tick up to 1.769%, but it has since eased to 1.760%. The yield curve remains little changed as the 2-10-yr spread trades 145.5 bps.

07:37 am - Flat: The dollar index is flat near 82.10 after climbing as high as 82.35 in the overnight trade. EURUSD is -5 pips at 1.2580 after data across the region remained disappointing. Eurozone, French, and German Manufacturing and Services Flash PMI numbers mostly missed expectations with only the German Flash Services PMI number showing expansion. The single currency slid to an overnight low of 1.2515, but has rallied back over the course of the morning. German Ifo Business Climate was also released, missing expectations with a 106.9 reading (109.4 expected). GBPUSD is flat at 1.5690 after revised GDP fell to -0.3% QoQ (-0.2% QoQ previous), confirming the British recession. BBA Mortgage Approvals (32.4K actual v. 32.3K expected) and preliminary business investment (3.6% QoQ actual v. 3.2% QoQ expected) both topped expectations. Traders remain focused on the critical 1.5650 level with a breakdown most likely producing a retest of the January lows near 1.5300. USDCHF is +5 pips at .9545 as early strength propelled the pair to .9595, its best level since February 2011. Buying comes after Switzerland’s trade surplus fell short of estimates (CHF1.33 bln actual v. CHF1.75 bln expected). Meanwhile, EURCHF holds steady at 1.2010.



USDJPY is -15 pips at 79.35 after the Bank of Japan Monthly Report indicated corporations are becoming more optimistic. Non-manufacturing sentiment has climbed to levels not seen since December 2007; however, manufacturing sentiment remains constrained due to the ongoing European debt crisis and slowing Chinese economy. A move through near-term support in the 79.00 area will produce the long-awaited retest of the pair’s 200-day moving average near 78.55. AUDUSD is +30 pips at .9785 after early selling saw the pair hold the .9700 level. Today’s strength comes despite a Chinese HSBC Flash Manufacturing reading of 48.7, the seventh consecutive reading indicating the sector is in contraction. USDCNY strengthened to 6.3265.

USDCAD is -5 pips at 1.0235 and trades on its worst levels of the session. The pair has gained close to 500 pips in May with action looking a little heavy over the past couple of sessions. A pullback into the 1.0050 area would be healthy.

07:05 am - Little Changed: Treasuries are little changed, but on their worst levels of the session during what has been a rather quiet trade. The complex saw little reaction to the Chinese HSBC Flash Manufacturing PMI which posted seventh consecutive reading indicating contraction, but moved to its best levels after disappointing PMI data across the Eurozone. Buying following the European data ran the 10-yr to a session high of 100 11/32, but it now trades flat with its yield holding near 1.750%. Meanwhile, a flat trade in long bond has its yield little changed at 2.826%. The yield curve is little changed as the 2-10-yr spread trades 146 bps. Elsewhere, precious metals are strong with gold up $18 at $1566 and silver higher by $0.55 near $28.05. Data picks up as initial and continuing claims, durable orders, and durable orders –ex transportation cross the wires (8:30). Treasury will auction $29 bln 7-yr notes. Treasury Secretary Geithner will speak in Baltimore (15).