Euro Trots Higher as All Majors Stretch Late-Week Gains Against the Yen

DailyFX

ASIA/EUROPE FOREX NEWS WRAP

Price action was rather muted in Europe this morning with the notable exception of the rally against the Japanese Yen, for which all of the majors – including the commodity currencies – took part of. For starters, the May Japanese CPI reading came in a touch softer than expected, and with various officials saying that the current pace of easing is sufficient, two short-term fundamental factors have given ample reason to head back into short JPY positions.

The Euro is the outperformer among the group, aided by additional strong German data (May Retail Sales), building on what has been a quiet streak of better than expected reports from the Euro-zone core. Although French PPI numbers underwhelmed today showing deflation on both the monthly- and yearly-bases, the economic security of Germany is far more important.

Taking a look at European credit, the continued retracement (albeit at a slower pace) of short-term peripheral debt has afforded the Euro ample opportunity to rally, particularly against the Japanese Yen (the EURJPY tracks short-term peripheral debt closely).At the time of writing, the Italian 2-year note yield had dropped by -18% since its highs just on Tuesday. As government bond markets calm in the wake of the Fed’s announcement that it intends to taper QE3 fully by mid-2014, there is some room for cautious risk taking.

The Italian 2-year note yield has decreased to 1.894% (--2.2-bps) while the Spanish 2-year note yield has increased to 2.197% (+0.8-bps). Similarly, the Italian 10-year note yield has decreased to 4.504% (-5.7-bps) while the Spanish 10-year note yield has decreased to 4.756% (-0.9-bps); lower yields imply higher prices.

RELATIVE PERFORMANCE (versus USD): 10:50 GMT

EUR: +0.23%

CHF: +0.07%

NZD: +0.01%

CAD:-0.05%

GBP:-0.19%

AUD:-0.42%

JPY:-0.70%

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR): +0.18% (+0.41%prior 5-days)

ECONOMIC CALENDAR

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Euro_Trots_Higher_as_All_Majors_Stretch_Late-Week_Gains_Against_the_Yen_body_Picture_1.png, Euro Trots Higher as All Majors Stretch Late-Week Gains Against the Yen

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--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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