European Bailout Chatter Continues

More signs that European leaders are working on an enlarged bailout spurred a continued rebound in risk appetite. GBP and CHF were the top performers while JPY and USD lagged. The Asia-Pacific economic calendar is quiet.

EUR/USD closed out the day at a session high of 1.3546 but it was a bumpy ride with the pair as low as 1.3362 in early European trading. CNBC boosted the euro and broad sentiment after reporting on a European plan to create a special purpose vehicle to buy distressed periphery bonds. The key further gains will be breaking the highs from late last week in the 1.3550/67 range.

While the news surrounding an enlarged and empowered EFSF was largely positive, signs of trouble continue to arise in Germany. First, Fin Min Schaeuble said there is no intention to increase the EFSF (but did not rule out leveraging it). Second, the head of the constitutional court said Germany is already pushing the limits of its constitution with current bailouts and a referendum may be required before expanding the bailout mechanism or making it permanent.

Fed Governor Raskin also helped boost risk assets, saying additional policy accommodation is warranted under present circumstances. The S&P 500 gained 2.3% to 1163 and closed at the highs. The Australian, New Zealand Canadian dollars all fell to fresh recent lows but rebounded and closed higher on the day, suggesting the potential for further corrections.

The washout in gold and silver finally appears to have ended as both fell drastically once again before rebounding to nearly unchanged levels on the day.

The lone item on the economic calendar is the 2350 GMT of Japans corporate services price index. Expectations are for deflation to continue with prices down 0.4% y/y following a 0.5% in the prior report. The data point rarely moves markets.