Intraday Market Thoughts

Euro Holds Despite Rising Spain & Italian Yields

by Patrik Urban
Jun 12, 2012 12:43

UK manufacturing production fell and industrial production was flat; Swiss SECO sees faster growth in 2012 but slower in 2013; Spanish and Italian 10 year yields rise. Market turns to import prices, IBD/TIPP economic optimism and budget deficit. Last nights longs in GBUSD, EURUSD & gold have been triggered and in progress. See the rest below.

USD gave up a portion of earlier gains throughout the Asian and London sessions. EURUSD continues to trade above 1.2500 after bouncing from 1.2450 and major European equities are gaining about 0.5%.

Euro is likely to trade within the existing range as traders are unlikely to want to open new positions ahead of this Sunday's Greek elections that are too close to call. See Ashraf's Premium Intermarket Insights on EURUSD below.

GBPUSD initially fell to 1.5452 but quickly recovered after UK manufacturing production declined 0.7% in April from previous 0.9% m/m but slowed the pace of a decline to -0.3% from -0.9% on annual basis. Monthly industrial production was flat while annual production fell 1% from previous -2.6%. If it was not for the unusually cold temperatures that lead to a surge in energy demand, the monthly results would be even weaker. Worse than anticipated prints not only suggest additional declines but also add pressure on the BOE to ease further.

Swiss SECO agency released its quarterly economic forecast in which it noted robust activity and resistant export industry. As the Swiss economy is performing better than anticipated, the 2012 growth forecast was raised from 0.8% to 1.4% with CPI forecast unchanged at -0.4%. Growth for 2013 was downgraded to 1.5% from 1.8% and CPI should rise 0.5% vs. the initial estimate of 0.4%.

In other news, Italian 10 year yield broke to 6.19% which is the highest level since 01/30 and Spanish 10 year rose to 6.65%. Fitch ratings noted that while LTRO3 is an option it does not see it in the near term. However, should Greece leave the EMU, new LTRO may be needed as it could lead to a wider euro break up.

Today's second tier US data is unlikely to have a lasting impact on trading. Import prices due at 8:30 am are expected to decline 1% in May from previous -0.5%, IBD/TIPP economic optimism due at 10:00 am is seen lower in June at 47.3 from 48.5 and budget balance due at 2:00 pm is anticipated to fall to USD -112.7 bln in May from April's USD 59.1 bln surplus.

GBP volatility could increase at 10:00 am when NIESR will release its May GDP estimate for the UK.

The latest Premium Intermarket Insights is titled Maintaining Consolidation View, include longs EURUSD, GBPUSD, AUDUSD, USDCAD and gold. No positions in US crude. Distinguishing between the short and medium long term in these trades remains key. Direct Access here: Non subscribers can join here:


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