EUR USD (1.4350) Jean-Claude Trichet added his weight to the recent EU criticism of the major rating agencies. He also made another step towards making them redundant – at least as far as the EU sovereign debt crisis is concerned – by scrapping the minimum credit rating requirement for Portuguese government bonds. He continued to draw the line for eligibility at ‘default’, but market commentators are increasingly of the opinion that some flexibility is possible there too. This is the reason why the euro recovered; the waiving of the minimum rating was expected, as the ECB had already done the same for Greece and Ireland. Finally, what really matters for liquidity operations is the haircut that is applied to the collateral, not the rating. Haircuts are decided by the ECB.
Earlier in the day, the euro had retreated almost back $1.42 on increased optimism about the US jobs outlook. In so doing it filled the lion’s share of the elucidated downside risk. Subsequently, it recovered back to the middle of the recent range and to a level traders are likely to perceive as ‘fair-value’ (see Market Bias Index). We suspect that the few short-term positions that exist are shorts created after yesterday’s ADP number, and these are already underwater. The bar for today’s non-farm payrolls to be able to durably help the dollar has therefore been set very high.
Market Bias IndexTM
A nascent euro bias may have evaporated again, but we note that the budding, but still small, perception of AUD and CAD overvaluation is persisting.
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http://www.easyforexnews.net/wp-content/uploads/2011/07/GDPBD00000187228.pdf
Deutsche Bank
Fixed Income Research – Global