Intraday Market Thoughts

Archived IMT (2010.01.11)

by Ashraf Laidi
Jan 11, 2010 2:31

DEUTSCHLAND-US YIELD SPREADS: Now that youve seen our chart on the correlation between UK-US Yield Spreads & GBPUSD, lets look at the resurging relationship between the German-US 10 year yield spread and EURUSD. EURUSD remains capped at $1.45 as the WIDENING YIELD GAP continues to favour the US relative to Germany (DE-US spread = -0.44%). Chart below shows the correlation between 10 year yield spreads & EURUSD has recovered since November to hit 0.54 (STRONGER CORRELATION), highlighting credit markets' response to the Fed's intention to conclude its asset purchases next month. The Nov jobs report was instrumental in greasing the wheel for the US yield advantage, which is set to retest November's 2-year highs (in favour of USD). The sudden silence in the Eurozone regarding the credit and banking troubles may help back our expectations for $1.38 before quarter's end on the heels of further pro-USD yield gap. This is in line with Thursday's note on UK-US yield gap, which we expect to go into negative territory in May. The chart speaks for itself. We sent this chart to CMC Markets clients right after Fridays jobs report. Bloomberg now has an article about it in its home page. WE STILL NEED SUPPORT from those who haven't voted


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