Weaknesses in the Euro Intensified Today
We have had a number of EU wide data releases this morning, which on the face of it look to have arrested some of the weakness in the EUR, which intensified yesterday. We had a real blowout in Italian vs German bond spreads which were the primary driver given Italy's political crisis, seeing the 10yr spread balloon out to around 300bps.
This has since contracted by around 30-35bps, with the German 10yr back at 35bps vs a low of 20bps. Italian BTP yields ramped up to 320bps, but are now under 300bps and this tight correlation is playing out in EUR/USD which is now above 1.1600. Traders had been warning of demand at the 1.1500 level, and the end of the week will be telling if we manage to close at these levels or better, as this will show a tentative rejection of the previous 1.1550 base which was blown away in the risk off mayhem.
Later today we get some key US data, not least of all the second reading of Q1 GDP, but Apr trade stats and the usual pre payrolls ADP release which should make for a busy afternoon - so this puts some of the pullback in EUR/USD in context - ie position squaring to some degree. 1.1730-40 is still the major resistance area to watch out for here, and we are some way off this. Room for more upside as a result, with the German data this morning perhaps dampening fears of the economic slowdown as unemployment dips again to 5.2% while retail sales picked up in Apr.