Euro Rallies on China Bond Buying Speculation

Euro among the strongest performers on Thursday after a report that China and other Asian investors will scoop up Portuguese bailout bonds next month. There were also reports China's sovereign wealth fund would investing in NZ assets, extending the boost to risk currencies such as NZD and AUD.

USD is the weakest major while the kiwi dollar sits atop the market as risk appetite returns. Switzerland and comments from Trichet will be the focus of European trading.

The FT is carrying comments from EFSF top exec Regling who said that Beijing is clearly interested in the 440bn rescue funds that will be auctioned next month. EUR gained on the comments but we see no reason to be chasing the market higher on this headline. The sale is for triple-A rated securities that are backed by the entire Eurozone. We feel the market is interpreting this as a Chinese vote of confidence in Portugal when its really an effort by the Chinese to diversify holdings in a virtually risk-free investment. If China were to invest in Portuguese govt debt or in other periphery countries, that would be a EUR buy signal with some staying power. CHina's CIC alsosaid to invest NZ $6bln in NZ assets.

The other theme of todays session is a return to risk appetite that has picked up steam from the US. The Nikkei is up 1.4%, the HSI higher by 0.5% and ASX 200 up 1.3%. Commodity currencies are predictably higher but economic data also helped boost AUD/USD a half-cent to 1.0582 as Q1 private capital expenditures increased 3.4% compared to the +2.8 consensus.

Focus Shifts to Switzerland and Trichet

European safe haven flows have pushed the CHF to record highs but the markets attention will shift to the strength of the domestic economy on Thursday. At 0615 GMT, Switzerland is expected to post a $2.05B trade surplus. An hour later, figures are expected to show the employment level at 4.1m in April compared to 4.085m in March. The trade balance will have a larger market impact especially if there is a sharp deterioration due to the strong CHF. This would hurt the franc on fears that we may see policymakers renew calls for FX intervention. Another event to watch for in Europe is a speech from Trichet at 0920 GMT.

SILVER HAS HIT THE $38.90 TARGET mentioned in Thursday's premium piece, where the entry was at 34.90/35.20. To subscribe to our Premium services, click on here http://www.ashraflaidi.com/products/sub01/

Wednesday's LONG TRADES IN SP500 has been executed with 1325 target hit, while the LONG FTSE-100 trade at 5840-55 has been executed. Tune in for Wednesday's piece for details on the limits & stops on this trade.

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