EUR USD (1.4305) The ECB strictly opposes any notion of peripheral debt restructuring, be it soft or otherwise, as emissaries Bini Smaghi and Stark adamantly made clear.
Yesterday the Bank even threatened to stop accepting government bonds as collateral if Greece changes the terms of its debt. Hence, it would seem that coaxing lenders to accept a longer maturity on Greek government paper is not going to be the remedy that some eurozone finance ministers had hoped for. Once policymakers agree that some form of restructuring is necessary there will be no turning back if they were later to realise that creditors were not amenable; they could not make it ‘unnecessary’ again. Eurozone politicians must be aware of that before they agree to any ‘reprofiling’.
Meanwhile in the US, yesterday’s May Philly Fed Index release was surprisingly disappointing. Where analysts had been expecting a moderate increase over April’s 18.5 reading, this month’s figure at 3.9 obviously put the US dollar on the defensive, as indicators of future activity fell sharply. The employment component improved meaningfully, but any consolation for dollar-bulls was tempered by a 15-point fall in the six-month hiring outlook. The euro was able to improve, but stability will not be ensured, we believe, until it crosses the 1.4440 hurdle. The best support lies at 1.4150.
Market Bias Index
We changed the scale on the Market Bias Index: upon closer inspection it becomes apparent that the currency biases have diminished even more.
Deutsche Bank
Fixed Income Research – Global