EUR Struggles For Upside
The closely watched Spanish auction failed to excite markets. Although the Spanish Treasury secured their target allocation and the bid-to-cover ratios looked high, our Fixed Income team noted that the cutoff prices were very low. Given prices are already high (Spanish 10y yields remain sub 5% as of writing) relative to recent levels, investor caution was bound to resurface, especially with talks over Greece continuing. In addition, Spain will announce its bank overhaul plans later on Thursday and investors will be closely watching the potential impact on the country’s contingent liabilities. The French auction which proceeded passed without incident – though all issues tailed. However, the euro did receive a healthy bounce on the back of comments coming out of Beijing. Speaking with visiting German Chancellor Merkel, Chinese Premier Wen Jiabao noted that China was considering ‘greater involvement’ in the EFSF and ESM stabilisation funds. However, he added that China was still ‘researching’ ways to participate, suggesting that SAFE or other relevant entities are not yet active in the market for the facility. There was no mention of boosts in IMF funding, which is much sought by both the IMF and the European Union. In other news, there was still very little commentary on the situation in Greece, though it is becoming clear that talks are at a rather advanced stage. Ahead today during the US session, initial claims may shed some more light on the current labour market situation in the US, especially with recent data showing some signs of softening in economic momentum. Overnight EURUSD traded in a range of 1.3122-1.3196 and USDJPY 76.23-76.06.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank