Intraday Market Thoughts Archives

Risk trades continued to rally after an upbeat ISM manufacturing report and stocks closed out their best week in two years. CAD and AUD were the days top performers; JPY and CHF lagged. Fridays CFTC report showed that forex traders were quick to jump on the risk rally.

Junes ISM manufacturing index came in stronger than expected at 55.3 versus the 51.5 consensus and 53.5 prior. The market had largely priced in a strong reading after yesterdays upside surprise in the Chicago PMI. The details of the report were weak as inventory building inflated some of the data. Somewhat overlooked was the fall in prices paid to 68.0 from 76.5. This was below the consensus and shows that inflation pressures in the US are dissipating something that is absolutely essential if the Fed wants to think about QE3.

At the moment, however, further stimulus is off the menu with stocks absolutely buoyant. The S&P 500 posted its largest gain of the week, climbing 1.4% to close at 1339. That extends the 5-day rally to 5.6%. Conversely, the bond market took a thrashing with 10-year Treasuries leaping to 3.18% compared to 2.87% a week earlier.

On the week, the Canadian dollar tops followed by AUD and EUR. The Swiss franc lagged badly after leading the week before. Gold closes the week before $1500 at $1488; its the lowest weekly close since early April.

The strong ISM data overshadowed signs of a slowdown in Chinas manufacturing PMI and further weakness in Japans economy. It also overwhelmed a slight fall in the final U Mich consumer sentiment reading as it slid to 71.5 from 72.0. US vehicle sales fell to 11.45m in the month from 11.75m in May.

Fridays CFTC report showed EUR longs increasing 11%. The overall USD short position decreased 25% but it was a result of falling CHF and JPY (especially) longs. Commodity currencies were in demand. The results are from the close on Tuesday and those trade undoubtedly extended afterwards.

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Ashraf discussing China's support of the euro currency, Europe & its global aspirations for its currency http://tinyurl.com/3rcx3v5

GBP continues to be punished for disappointing fundamentals. Data points to global slowing of manufacturing activity. Corn futures plunge. Market turns to US Manufacturing PMI (ISM).

USD is little changed since London session opened. Most currency pairs have been trading within a narrow range with the exception of GBPUSD that dropped almost 100 points after disappointing PMI data and reached the important level 1.60 yet again.

Manufacturing activity seems to be dropping globally and in many cases prints are dangerously close to or even bellow the 50 level that indicates a contraction. Latest round of disappointments came from Spain (PMI at 47.3, lowest since 1/2010), Italy (PMI at 49.9, lowest since 10/2009), Switzerland (SVME PMI for June dropped to 53.4 from previous 59.2) and the UK (PMI in June printed 51.3 from previous 52). Even revisions of previously released data often show downward trend German PMI for June was revised to 54.6 from first estimate of 54.9. Euro zone final PMI for June stayed at 52, same as initial estimate.

Politicians mostly count on growth to repay debt incurred by governmental stimulus during recessions. It will be interesting to see social and political ramifications should the economy slip into another recession. Even the slightest change in GDP growth or the unemployment rate often causes massive disruptions in tax revenues or expenditures over a longer period of time.

Equities continue their ascend but some commodities trade heavy. Corn futures collapsed from around 650 to 580 as US farmers sharply increase acreage of planted corn. Gold trades at session lows after falling from 1514 to 1487 USD/oz over the past few sessions. Silver trades with similar price action around 33.87 USD/oz.

Due at 9:55 am ET, US final Univ of Michigan Consumer Sentiment index is expected at 72.1 but impact is likely to be limited as June ISM Manufacturing PMI is due only five minutes later at 10:00 am ET. Manufacturing is expected to drop from 53.5 to 51.9 which would be the weakest reading since September 2009 and not far from the critical 50 level that indicates contraction of the manufacturing sector. Peak manufacturing was recorded back in February when reading reached 61.4. Also worth looking at US May construction (seconds before ISM), expected to be flat.

The weak sterling hopes for a PMI boost, Chinese PMIs and Japanese Tankan disappoint, euro PMIs could prompt profit-taking, US ISM and Michigan confidence.

If ever a currency needed a boost the pound needs one right now having hit its lowest levels against a basket of currencies since the general election in May 2010. While the single currency has ripped higher the pound has been hit by disappointing data virtually every day this week. Todays manufacturing PMI data for June could give the beleaguered pound a nice boost to take into the weekend.

The manufacturing PMI has been one of the more robust data items over the past few months, however it has slipped back somewhat from some of the impressive figures it was putting in earlier this year, when it was posting figures above 60. Expectations are for a slight increase from Mays 52.1 number to 52.3. Any number below that would reinforce fears that the UK economy was starting to grind to a crawl.

About half an hour before that, the focus will still be on Europe and it will make a pleasant change not to have to focus on Greece and instead look German and Euro zone manufacturing PMI data which will give some indication as to whether or not Europes economy is starting to slow down as well. Yesterdays dreadful retail sales figures in Germany have raised fears that consumers in Europes biggest economy are starting to rein in their spending in light of wider concerns with respect to the German economy which could be showing signs of slowing. German PMI for June is expected to stay at 54.9, unchanged from the previous month, while euro zone PMI is expected to come in at 52.

Continuing with the manufacturing PMI theme Chinese data for June continued to show weakness with the official PMI data for June slipping back to 50.9, its lowest levels since February 2009 and well below expectations of 51.5 and down from Mays 52, showing that the recent monetary tightening is beginning to have an effect. The equivalent HSBC PMI measure only just crept into expansion territory at 50.1., prompting fears that Chinese manufacturing could be on the brink of contracting, and easing fears of further monetary tightening in the near term.

Japans Tankan survey which measures business sentiment amongst manufacturers showed a marked deterioration for the last quarter, with the large manufacturers index dropping to -9 from +6. All other measures also disappointed with the only positive being the large all industry capex which came in at 4.2%, above expectations of 2.3%.

Later in the afternoon the latest manufacturing ISM numbers for June are scheduled for release and given the expiry of QE2, markets will be hoping that after the recent declines in manufacturing activity that there is a summer pick-up ahead of the long 4th July weekend.

Equities soared for the fourth consecutive day on Thursday after Greece passed its final austerity vote and the Chicago PMI beat expectations. CAD was the top performer while CHF was the laggard. The upcoming session will be very busy with Japanese employment, CPI, household spending and the Tankan. PREMIUM TRADES hit Today's LONG TARGETS in EURUSD, S&P500 & shorts in USDJPY. Other remain in progress.

The euro posted another strong performance while the dollar was mostly weaker after Greece passed the legislation needed for the next tranche of EU/IMF funds. Unfortunately, there already may be some troublesome signs. Bloomberg reports that Papandreou has asked for a quicker dispersal of the aid which means that spending cuts and/or tax revenue have fallen well short of expectations.

Yesterday's EUR longs from Ashraf's Intermarket Insights found their target as the pair topped out at 1.4538 shortly after the European close. The pair ran into downtrend resistance around 1.4530. Short USD/JPY also reached its initial target as did trades on EUR/JPY and stocks. TO BECOME A SUBSCRIBER: http://ashraflaidi.com/products/sub01/

The Chicago PMI blew away expectations, surging to 61.1 from 56.6. (54.0 exp). This is helping to drive the idea that the recent slowdown was due to Japanese supply disruptions rather than a domestic slowdown. The consensus remains at 51.5 for tomorrows ISM report but the market will now need something 3-4 points higher to keep the positive sentiment going.

Some negative news creeped in but was ignored as the S&P 500 rose 1% to 1320. Initial jobless claims remained elevated at 428K compared to the 420K expected. Bank of America also agreed to pay $8.5 billion in settlement due to misrepresentations in mortgage securities. It will take at least rest of the year for BAC to rebuild that capital and that leaves it vulnerable to shocks.

Bloomberg reports that Treasury Secretary Geither will consider leaving his post after a budget deal. He took over when Obama assumed office so he would be leaving after less than three years on the job. He lacked charm and charisma from the beginning and is unpopular on Wall street and Main street.

Asia-Pacific Preview

A quiet week in Japan picks up considerably on Friday. At 2330 GMT the unemployment rate is expected to tick higher to 4.8% from 4.7%. At the same time, core CPI is expected at 0.5% y/y and household spending expected to fall 1.7%. At 2350, the Q2 Tankan large manufacturers index is expected to fall to -7 from +6.

All these releases will be market moving but the most important will be the Tankan because it relates to a badly quake-damaged industry and it is forward looking. Expect to see some USD/JPY weakness on a strong reading (better than -2).

Ashraf's insights on the dollar trade, the global easing & emerging markets' growing barriers to growth via the weak US currency http://tinyurl.com/5tkvj9g

Markets trade within a narrow range ahead of second round of Greek voting. German data comes on the weaker side, Trichet provides hawkish comments and GBP is the relative strength loser. Market turns to Canadian GDP and US Chicago PMI.

After the calm Asian session, the FX market is consolidating yesterdays gains. Equities, commodities and high yielding currencies trade near session highs.

German Retail Sales for May dropped to -2.8% from previous unchanged reading and German jobless reading came at -8K, slightly short of expected fall of -17K. Unemployment stayed at 7% as expected.

J. C. Trichet that spoke in Brussels earlier today reiterated that strong vigilance on inflation is warranted and ECB is ready to act in timely manner on inflation. Next ECB meeting is July 7th and rate increase is likely. This notion is supported by the Euro zone CPI figure for June estimated at 2.7% y/y which is above the ECBs 2% inflation target.

UK Nationwide HPI index for June came out flat and -1.1 y/y. Traders have been selling GBP against virtually everything. The Sterling is falling even against the weak USD and reached the psychologically important 1.60 level again. GBP is at decade lows against number of currencies (AUD, NZD, CHF).

Canada releases its GDP figures at 8:30 am ET. On a monthly basis GDP is expected to drop to -0.1% from previous reading of 0.3%. Year over year print is expected to decrease to 2.7% from previous 2.8%. Slowing US economy is likely to worsen Canadian growth figures as the US is a major Canadian trading partner.

US jobless claims fell 1k to 428k vs exp 420k. Later at 9:45 am ET Chicago PMI is due. Analysts expect fourth month of back to back deterioration. Headline is expected to show a decrease to 54.0 from previous 56.6.

EURUSD & USDJPY hit their targets from Thursday's PREMIUM TRADES

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Euro passes 1st austerity vote with implementation vote next, while remaining supported by rate expectations. Sterling Nationwide Gfk confidence data, Japanese industry continues to recover, Canada GDP and US weekly jobless. THE LATEST PREMIUM TRADES for THURSDAY are now ready.

The single currency continues to be supported by the quaint notion that somehow yesterdays successful Greece austerity vote has stabilised things in the beleaguered country. While that maybe partly true in the short term, there remains the small matter of todays implementation vote, where some parts of the package could be unpicked so to speak to make it slightly more palatable to the enraged population. In any case the main reason the single currency continues to find support especially against the US dollar is down to perceptions of a likely hike in interest rates at next weeks monthly ECB which could well be reinforced by the release of todays Eurozone CPI figures for June which are expected to rise further from 2.7% to 2.8%.

There has also been talk that Chinas SAFE is doing all it can to transfer billions of dollar denominated holdings into euros.

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German unemployment data is also due out this morning and expectations are for a drop of 17k and the rate to remain unchanged at 7%

The pound hit a one year low yesterday on its trade weighted index as the woes of the British economy continued to weigh on it, as well as the expectation that no action on interest rates would be forthcoming any time soon. Todays Nationwide Gfk consumer confidence number for June hasnt really done anything to relieve the pressure coming in at -25, slightly worse than expected.

In Asia despite the recovery in industrial production yesterday Japan continues to struggle with the after effects of the earthquake with vehicle production for May down 30.9%, albeit an improvement on Aprils 60% decline but still lower. On a more positive note construction orders were up 25.5% while housing starts beat expectations of 3.1%, coming in at 6.4%.

Before the US markets open it is hoped that the recent rise in US weekly jobless claims will start to show some signs of reversing, while Canadas latest GDP numbers could well disappoint in the wake of yesterdays surprise surge in inflation.

EURUSD tests $1.45 ahead of Thursdays crucial vote of the implementation of the MTP. The bounce in risk assets all across the board, is exerting punishment on the USD. Despite Thursdays SPR action from the IEA, the rise in US crude has joined equity indices in breaching 55 & 100 moving averages. HERE ARE THE LATEST TRADES from our Premium Intraday Insights http://tinyurl.com/64b4hj4 Non Subscribers click here: http://tinyurl.com/4yehn5u

Stocks and commodities surged after Greece voted in favour of austerity measures on Wednesday. NZD, AUD and CAD were the leaders while CHF and USD lagged. We warn that quarter end, the conclusion of QE2 may be distorting markets.

Greece passed the first of two critical austerity votes with 155 votes of the 300-person parliament. They will vote on a second bill Thursday to authorize the specific austerity cuts in greater detail. The initial euro selloff after the vote in Greece looked like an attempt to shake out weak longs but the market was able to regain its footing and closed near the morning highs and the June 22 highs around 1.4450; this level will be an important short-term hurdle.

As impressive as the moves were in the commodity currencies were, none of AUD, NZD or CAD looks technically compelling versus USD. That tends to make us want to stay away from any short-term longs here.

The S&P 500 closed at the highest since June 2. The index has gained at least 1% in each of the past three sessions. Remember that the weekly close on the index on Friday was the lowest since late December. If we can CLOSE THE WEEK around these levels, it would be a large technical boost for stocks and risk appetite. Be mindful, however, that funds may be buying stocks at quarter end in order to report long positions to their investors.

Todays 7yr Treasury sale mirrored weak 2s and 5s earlier in the week and yields once again climbed 5-12 bps. The level of weakness in bonds over the past three days does not correspond to news developments. With QE2 now over, rumours that dealers were buying Treasuries at auction, only to flip them to the Fed are looking much more believable.

The large moves in stocks and bonds are spilling over to forex and we warn that they may be unwound in the next week.

Economic data is second-tier in the Asia-Pacific region with Japans manufacturing PMI as well as housing starts, NZ Business confidence and Australian private sector credit.

Ashrafs LONG OIL TRADE trade despite the SPR release initiated at $91.50 hit its target at $94.70 today. For more trades, see the Premium section: http://ashraflaidi.com/products/sub01/

Ashraf's interview earlier today on Yahoo Finance discussing the euro, Greek debt, asset sales and more http://tinyurl.com/6yfvzz8

Euro sold on the fact Ahead of the Greek vote after Greek austerity package was passed in parliament by 155 votes to 138 votes against. CAD jumped on higher than exp CPI. Our premium trades to sell EURUSD & EURJPY were partly based on "but the austerity vote rumour, sell the vote fact".

Economic data did not have any impact today as market participants wait for Greek vote. UK Mortgage Approvals for May came in line with expectations at 46K, up slightly from previous 45K. The Euro Zone Economic Sentiment falls to 105.1 in June from 105.5 in May and Swiss KOF Economic Barometer printed 2.23 down from previous 2.3.

Canadian CPI for May came out much higher at 0.7% from previous 0.3%. Core inflation increased from 0.2% to 0.5% also significantly higher then expected 0.2%. On year over year basis prices increased 3.7%. The surge in inflation should underpin the CAD in near term as rate increases start to be expected.

Greek austerity measures have been broadly expected to pass. Equities, commodities and risk currencies benefited from this sentiment. However, situation continues to be difficult and tense. How will the austerity measures be actually implemented in light of such a strong opposition? What will happen when the results of the second round of bank stress tests are published on July 13th? Reports suggest that as many as 15 European banks may fail these tests.

New York session has only one significant data release. US Pending Home Sales for May are due at 10:00 am ET and are expected to improve significantly to 1.3% from previous drop to -11.6%. Later at 10:30 am ET Crude Oil Inventories could have an impact on oil price and consequently on the Canadian dollar.

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Sterling expected to remain under pressure as UK mortgage approvals and credit data expected to remain subdued, Greece austerity vote in focus, Canada CPI beckons. New Premium trades on USDJPY, EURUSD, EURJPY, silver and more.

GBP continuous its tortuous week and given yesterdays data it doesnt look like it will get any better. Bad news out of the high street with administration orders for department store TJ Hughes and clothes retailer Jane Norman, as well as widespread shop closures for chocolate maker Thorntons and Carpetright, suggests that things are starting to tighten up for the consumer.

Todays mortgage approvals data for May is expected to remain at fairly low levels, around 46k as the housing market continues to remain tight.

Consumer credit is not expected to show much in the way of life either, with expectations of 0.4bn, down from Aprils 0.5bn, given that household spending for the fiscal year just ended showed the sharpest contraction since 1977.

Yesterday's rebound in the single currency has so far managed to remain below the 55 day MA at 1.4410 as markets factor in a yes vote at todays midday vote in the Greek parliament.

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The rally yesterday was also helped by ECB president Trichet more or less confirming that the ECB would raise rates by 0.25% at next weeks monthly meeting, when he confirmed the banks strong vigilance stance.

Given these factors and the fact that there appears to be broad agreement amongst EU leaders that the French bank rollover plan for Greek debt is the way forward there remains quite a lot of unease, and it is not hard to see why, when looking at what is unfolding outside the Greek parliament amongst the protestors.

There appears to be an alarming sense of complacency in the markets with respect to what is unfolding on the news screens in front of us, and even though the market could well get what it expects in the form of a yes vote, the feeling remains as to how the politicians will ever be able to implement the measures in the budget, given the apparent depth of opposition. Moving beyond a yes vote the markets will look towards the implementation vote, which also needs to be passed on Thursday this week, and that could be no less difficult.

Conflicting talk out of Europe about the existence of a Plan B yesterday also helped the single currency rise and if any of the votes turns out to be a no they sure will need one.

Canada CPI data for May is out at around the same time with expectations that prices will remain stable from Aprils numbers with a month on month rise of 0.3% and a year on year figure of 3.3%, though prices could well have fallen back given the recent decline in commodity prices.

Markets overlooked soft consumer confidence figures and falling house prices on Tuesday on the belief that Greece will pass austerity measures on Wednesday. The commodity currencies were the top performers and the yen lagged. The upcoming session features Japanese industrial production and the critical Greek vote. Japan Indus Prod beat expectations.

Markets are feeling secure ahead of a round of austerity votes in Greece beginning on Wednesday and continuing through Thursday. The S&P 500 surged 1.3% to 1296 and carry trades won out in the forex market.

The positive sentiment in markets overshadowed some negative news. US consumer confidence fell to 58.5 in June compared to the 60.3 expected and 61.7 prior. The S&P Case-Shiller home price index fell 4.0% y/y, as expected. The Richmond Fed rebounded to +3 from -6; a reading of +2 was expected.

On story that was overlooked was a warning from Siemens about a slowdown in global growth. The German engineering and industrial conglomerate is the largest in Europe and has as good of a grasp on the economy as anyone.

A soft 5-year Treasury auction followed a weak 2yr on Monday. Five year yields jumped 14 bps to 1.59%. 10-year yields climbed to 3.04% after opening the week at 2.87%. The rising yields supported USD/JPY and may be pointing to an intermediate-term turn on bonds.

Greek unions have embarked on a two-day general strike. Police fired tear gas into a crowd and reported that 37 officers were injured and 14 protestors arrested. Nonetheless, expectations are for the measures to pass with around 154 votes. A lower number may fray nerves and at least 151 votes are needed. News services are reporting that the Greek austerity debate will commence around 0600 GMT.

Japans industrial output rose 5.7% m/m in May, the 2nd largest on record due to a recovery of autos and trucks.

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EUR extends gains into 1.4380s in the face of escalating Greek protests. German Consumer Climate improves and UK current account deficit came wider than expected. US consumer confidence hits 7-month lows.

German GFK consumer confidence survey for July improved slightly to 5.7 from 5.6 and marks a first advance after four consecutive months of losses. German June CPI is being released from various regions throughout the day with most parts seeing consumer inflation either 0.1% or slightly higher at 0.2%. Once compiled, the headline figure is due later today.

GBPUSD dropped to 1.5911 on lower rate hike expectation and fear of further QE after UK final Q1 GDP stayed unrevised at 0.5% and year over year figure was revised down from 1.8% to 1.6%. Current Account balance came out at GBP -9.7 bln, much wider than expected GBP -5.0 bln. The inflation report hearing in front of parliamentary committee explained worries that members of BoE share. Among the most dovish were comments that economy continues to be too weak to withdraw stimulus and expressed concerns that further asset purchases may be warranted. It seems that calls for rate increase that we have seen in the past few months were premature.

EURGBP is up 7 of the last 9 days, rising 2.9% testing the June 8 high, affirming that EURUSD strength is not solely a case of weak US fundamentals.

S&P CS composite index is due. The price of single family homes is expected to decrease by -3.9% from previous -3.6%. Should it come as expected, it would mark six months of negative results and more importantly 11 months of gradual back to back worsening.

US June Conference Boards consumer confidence fell to a 7-month low of 58.5 from Mays 61.7, due to poor labor market conditions and rising and income concerns. All components fell.

As the Greek parliament vote is getting closer, markets are likely to remain nervous. Choppy trading within a range is likely as players will hesitate to open new positions ahead of the decision.

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Sterling remains weighed down by low rates expectations ahead of final UK Q1 GDP, euro buoyed by optimism regarding Plan B, Japanese retail sales continue to show signs of recovery.

GBP sank to 8-month lows against a basket of currencies on the back of reduced expectations of a rate hike this year, as well as yesterdays disappointing housing data. Last weeks slightly more dovish Bank of England minutes have also dragged down the currency and todays final Q1 GDP figures probably wont alter that perception too much.

Next week the ECB is expected to raise rates again, given Juergen Starks comments yesterday, while the BoE looks like it will wait until next year at the earliest, despite the criticism levelled in its direction by the annual BIS report. The report suggested that the Bank of England was playing with fire with its current low rate policy. This prompted a rather sharp reaction from arch dove Adam Posen who branded the report nonsense.

Expectations for this morning'Q1 GDP figure seen unchanged at 0.5%, with the year on year figure remaining at 1.8%.

EUR, on the other hand, seems able to shrug off whatever the market can throw at it, buoyed by a combination of support from China, an agreement about some form of bank debt rollover for French and German banks as well as a Plan B in the event the Greek parliament decide to give two fingers to the forthcoming austerity budget in this weeks vote.

Obstacles still remain, and the recent acceleration of net outflows of cash from Greek banks shows that not everyone shares the recent optimism.

This morning the first reading for Gfk German consumer confidence for July is expected to slip back further from Junes disappointing 5.5 number to 5.3.

Earlier today in Asia, Japanese retail sales numbers for May continues to recover from the aftermath of the earthquake in March showing an increase of 2.4% , down from Aprils 4.1% rise, but double expectations of 1.2%. Larger retail items took a hit however coming in at -2.4% slightly worse than April's -1.9% decline.

Later today US consumer confidence data for June is expected to be released soon after US markets open.

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Despite Friday's losses in commodities, our long trades in EURUSD, EURJPY and S&P500 have all hit their targets, our gold trade was stopped out and our US crude oil trade remains intact. In our Monday Premium "Intermarket Insight", we look at the latest charts in gold and the Chinese-driven supporting pattern in the weekly EURUSD chart. Subscribers'

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Positive sentiment emerged in US trading on hopes that Greece will pass an austerity budget and news that Europe is working on Plan B if the vote fails. The euro was the top performer while AUD and NZD lagged on the day. Japanese retail sales are the highlight of Asia-Pacific trading.

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EUR fell in early trading and overall sentiment was negative after Moodys warned that deposits are rapidly being pulled from Greek banks but the trade reversed on talk that Europe may incentivize its banks to rollover Greek debt with a Brady bond-like structure. Greek PM Papandreou also predicted HE WILL HAVE ENOUGH VOTES to pass the austerity budget required for bailout funds. A vote is likely on Tuesday. The ECBs Stark said the central bank is very vigilant. A JULY HIKE IS ALREADY PRICED IN but this helped traders feel a bit more confident about it.

US personal spending was flat compared to the +0.1% expected. Core PCE rose 1.2% y/y compared to the 1.1% expected. Although this is well below the Feds threshold, it is moving in higher and we believe it must fall below 1.0% before the Fed considers QE3.

Treasuries fell badly pushing yields higher by 5-9 bps across the curve. The selloff accelerated after a soft 2-year auction. The rising yields underpinned USD against JPY and CHF. Auctions continue on Tues (5yr) and Wed (7yr). The S&P 500 climbed 0.9% to 1280. Gold fell $5 and closed below $1500 for the first time since mid-May.

Comments from the Feds Kocherlakota (voter) did not relate to current policy, instead he called on the govt to lower the tax deduction on mortgage interest something that has zero chance of happening in the next five years.

Japanese Retail Sales

Japanese retail sales are expected to be down 2.2% y/y in May compared with a 4.8% drop in April. PM Kan appears to be closer to resigning at the end of the current Diet session in mid-August. Nikkei News reports he has offered to quit once bills are passed authorizing a supplementary budget and deficit financing.

USD has been trading lower across the board since London open. Euro supported by news from China and France. Will SNB attempt to stop the freefall in EURCHF? Fed's preferred inflation indicator rises to highest since Aug 2010.

USD continued higher throughout the Asian session but currently trades lower across the board. An improvement in sentiment is pushing equities, commodities and higher yielding currencies higher.

The improvement can be attributed to Chinese premiers remarks that China will continue to invest in European debt. This is already a second announcement in a few days as China announced by the end of last week that it would buy Hungarian debt. The improved sentiment can also be attributed to news that French banks have an agreement with French government to reinvest Greek debt into longer maturities. French and German banks have the largest exposure to Greece. German banks have already shown interest in the French model.

EURCHF continues its freefall, reaching historical lows at 1.1816. At the beginning of April, this pair traded at 1.32 which promotes the speculation whether the SNB considers such a large and rapid move disorderly and whether it will try to slow the market down by intervening in the market. There have not been many comments from SNB officials lately and SNB holds a large long position from around 1.50 after unsuccessful interventions throughout 2009 and 2010.

US May personal income +0.3%, while personal consumption expenditure was flat (worst since Sept '09). PCE core prices (Fed's preferred inflation indicator) rose 1.2% y/y (highest since August). The combination of flat spending & rising inflation is not exactly what the Fed has wished for.

Traders should also pay attention to FOMC voting member Kocherlakota who speaks at 11:00 am in Montana. Audience questions are expected and Narayana Kocherlakota mentioned a few hawkish comments recently.

China pledges to remain a key buyer of Eurozone debt, Italy and Greece concerns to keep investors cautious, US treasury yields hit 2011 low.

Euro remains under pressure, despite weekend comments from Chinese Prime Minister Wen Jaibao to European policymakers, and Europe at large, that China would remain a key buyer of European sovereign debt. While welcome news it is highly probable that any such help will more than likely come with onerous strings attached, in spite of Chinas desire to have an alternative to the US dollar as a reserve currency. With that in mind it isnt too hard to spot their motives in trying to help keep the euro project alive. Despite this pledge the fears appear to have spread beyond Greece towards Italy.

Bear in mind it is Italian banks which are likely to remain a key concern after last weeks actions by Moodys in downgrading as the focus on Europes sovereign debt crisis shifts towards both Spain and Italy with their 10 year bond yields moving inexorably higher on Friday, with Spanish 10 year yields pushing back towards the highs seen last May at 5.7%.

With respect to banks, European politicians remain concerned about French, German and Spanish bank exposure towards Greece debt with talk from France suggesting that some French banks might be prepared to roll-over up to 70% of their exposure to Greek government bonds in the hope that a default can be avoided.

GBP expected to remain under pressure ahead of the final release of Q1 GDP tomorrow.

Continued deadlock in the debt ceiling talks doesnt appear to doing US treasuries any harm for the moment with US 10 year bond yields hitting their lowest levels this year at 2.84%, breaking below the key 2.88% level. They could well continue lower as capital continues to flow out of European bond markets and into US treasuries.

Fridays slightly better than expected US economic data was brushed aside by investors.

Todays US economic data for May is personal income, spending and consumption data which is due out prior to the US open.