EUR

European Market Wrap for now: Risk Makes A Comeback On China Diversification Story

Italy Final Q1 GDP rvsd +0.4% q/q, +0.5% y/y
Spain 5-yr CDS falls to 223.5 vs 241bps, Italy CDS falls to 191.5 vs 206bps
Portuguese/German 10-yr bond spread 267bps vs 273
Italian/German 10-yr bond spread at 147 vs 159bps
Spanish/German 10-yr bond spread at 199 vs 205bps
Chinas SAFE says Gold market too illiquid, small, volatile for asset allocation
Spain says bid/cover ratio 2.1 on bid/cover on 3 -yr bond auction
China FX regulator says it will improve diversification of countrys FX reserves
China FX regulator says its international payment surplus will remain large in 2010
France April output falls 0.3%vs 1.3% in March

Asia saw the main moves today with risk trades buoyed by comments from the Chief of Chinas Pension Fund that China would continue to diversify (out of USD). EUR/USD charged to 1.2060 in Asia and after some hesitation in London posted a new intraday high at 1.2088. AUD/USD however has been the star attraction with another blinding set of employment numbers unemployment now 5.2% (how do they do it). South Korea got itself all tied up in knots over FX regulation as they try to keep the Won weak.

EUR/USD has been well supported today after the China Pension Chief, followed up by the FX regulator said China will continue to diversify FX reserves (that means out of US Dollars). EUR/USD took off in Asia racing above 1.2060 but there was little to no follow through in early London. When the pair could not get back below 1.2010 it took off again making a fresh intraday high at 1.2088; last at 1.2065.

GBP/USD has followed the same path as EUR/USD on the back of the China diversify story. Pair took out stops above 1.46 in the London morning before falling back to 1.4575. Jumped again when Euro hit 1.2088 touching 1.4645 before retreating to safer territory around the 1.4620 prior to the BOE decision.

USD/JPY has been rangebound (90.85-91.39) with carry trades not really impacted by the China FX diversification story.

AUD/USD opened in Sydney on its (0,8269) low and surged higher on another fantastic set of employment numbers. The pair got to 0.8395 in Asia but has remained well bid in London touching 0.8436 a short time ago before pulling back slightly; last at 0.8430.

Gold is down $10 on better risk appetite but also a China story where the FX regulator says the Gold market is too illiquid, small and volatile for asset allocation.

Stocks were mixed in Asia Australia up China small down whilst in Europe stocks are up across the board. Helping is confirmation of strong data out of China (exports up 48.5% on year) but also BP has staged a strong recovery paring some of those steep losses seen in NY overnight. US futures are all showing strong opening gains

Indeed ashraf,

I use this methode( fibi.confulence) too on my chart analysis and also you can find these levels on Oil S&P Dow... and what is it interesting is that this method was often confirm you can see my old Oil chart on facebook...

Yes. I don't think they will do anything with the rate right now, even though I think they will hike in Q4 2010.

50bps what? up or down?

http://www.zerohedge.com/article/john-taylor-schizophrenic-europe-must-read


"An independent economist calculated that the value of the euro would have to be $0.31 to balance Greeces international position, and the number for Spain was $0.34, while Germany could effectively compete in the international marketplace with a euro over $1.80. Despite the ECB pegging the refinancing rate at 1.00%, two-year benchmark government rates for Germany are way below that at 0.48%, but way above it at 7.91% for Greece, Ireland 3.37%, and 3.20% for Spain. Ireland has been living with annual deflation for the last 16 months, while German lawmakers are worried about inflation. These differences have become more dramatic in the past few months and most independent observers forecast that trend to continue. By any economists measure this is not an optimal currency zone. But the economists are not in charge, the politicians are, and these politicians have spent their entire careers following their conception of the European currency. Their reputations and the European myth depend on the survival of the euro, and those who doubt its viability are enemies who deserve to be ground into dust. There is one overarching problem that the defenders of the euro cannot overcome: in its current form, the euros survival is economically impossible. Prior to the Greek crisis, the market did not understand this, but now it does. And you cannot put the genie back in the bottle."

"If part of the euro is worth $1.80 and another part is worth $0.31, how do you value this currency today, while its still in one piece? That is the crux of the matter. The uncertainty around this issue is what has caused billions of euros to flee into the security of the Swiss franc. The Swiss authorities have intervened, buying so many euros that their reserves expanded by 45% of their GDP since the start of this year. Despite that massive intervention, the Swiss franc has climbed by 10% against the euro since mid-December. There is no sign of change. As the politicians are completely in control, the schizophrenic euro could go on for years with the economic dislocations becoming more and more intense. Little explosions are likely. Certainly, the Swiss are in a terrible position (see Switzerland Surrounded Again, April 29, 2010) as the euros will keep flowing in. The Swiss franc might gain another 10%, destroying its export base, but the Swiss could change the rules to protect themselves. Although the European political elites are totally committed to the euro, the man on the street is different. The European political peace is a compromise between entrenched elites and the highly entitled masses first formulated by Bismarck over 120 years ago. The withdrawal of those entitlements in order to save the euro could easily upset this historic deal. If those in power continue to ignore the needs of the people, neither the euro nor the current political structure will survive in its current form."