- Bernanke says Economic Data May Mask Individual Suffering – Bloomberg
- Pound Declines as Home Prices Fall Amid Weaker Economy – Bloomberg
- Italy Doesn’t Need German Cash, Monti Tells Germans – Reuters
- Friction as China Clout Grows in Japan – WSJ
- Syria Prime Minister Reportedly Defects – WSJ
Asian/European Session Summary
High beta currencies and risk-correlated assets moved slightly lower in Asian and European trading on Monday, although fresh highs in EURUSD were set at the start of trading in the first full-week of August. Notably, however, was the once trading in North America opened, the US Dollar began to fall across the board; this is hardly the start of a risk-on move, however. Instead, it appears to be diversification away from the world’s reserve currency, with the Japanese Yen leading the majors thus far on Monday.
In Europe, little has progressed on the front to fight the crisis, although Italian and Spanish yields are moving lower (yields on the Iberian peninsula are significantly lower overall, with Portugal leading the pack; more below). Italian Prime Minister Mario Monti warned of a potential Euro-zone break up today, citing concerns that unless more is done with greater urgency to help fight rising sovereign debt yields. Prime Minister Monti noted that the issues “have to be solved quickly now so that there’s no further uncertainty about the euro zone’s ability to overcome the crisis.”
Meanwhile, in Greece, concerns are rising over how long the country will remain solvent, in light of the fact that the European Central Bank had to adjust its collateral rules on Thursday to ensure Greece would not go bankrupt. Before the past few days, the Bank of Greece could only accept government securities up to a limit of €3 billion as emergency liquidity assistance, but the limit has now been lifted to €7 billion. According to analysis by Reuters, this should keep Greece afloat until September.
September is shaping up to be particularly important, given a few major events that are expected to take place. For now, the short list is: the European Central Bank will unveil a major bond buying program; the European Troika will layout the terms for a third Greek bailout (which will lead to new elections); the European Union will propose its banking union plans; and the Federal Reserve should shed light on when quantitative easing round three will come about.
Taking a look at credit, peripheral European debt has continued to rebound broadly speaking, led by Portugal and Spain. The Italian 2-year note yield has fallen to 3.004% (-7.0-bps) while the Spanish 2-year note yield has eased to 3.372% (-43.7-bps). Meanwhile, the Portuguese 2-year note yield has collapsed to 5.615% (-107.0-bps). On the longer-end of the yield curve, the Italian 10-year note yield has dropped to 5.955% (-5.5-bps) while the Spanish 10-year note yield has slid to 6.654% (-11.4-bps); higher yields imply lower prices.
GBPJPY 5-minute: August 6, 2012
Charts Created using Marketscope – Prepared by Christopher Vecchio
The Japanese Yen is the top performer, gaining 0.37 percent against the US Dollar thus far on Monday. The British Pound has trailed the pack, with the GBPUSD depreciating by 0.12 percent. The Euro is slightly higher, up 0.25 percent against the US Dollar. The Australian Dollar has underperformed, gaining only 0.20 percent against US Dollar today, ahead of the Reserve Bank of Australia policy meeting tomorrow.
Key Levels: 16:00 GMT
Thus far, on Monday, the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is trading lower, at 9989.15 at the time this report was written, after opening at 10004.06. The index has traded mostly lower with the high at 10030.20 and the low at 9981.13.
--- Written by Christopher Vecchio, Currency Analyst
To contact Christopher Vecchio, e-mail firstname.lastname@example.org
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to email@example.com