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Mid-Day Report: Risk Aversion Dominates after Poor Italian Bond Auction, Spain Yield Broke 6.7%European majors and risk markets were hit strongly today as Spanish 10 year yield jumped to a record high of 6.7%. Spread with German bund also continued to make new record high of 5.36%. Worries on the Spanish banking sector persisted and there was already consensus in the market that Spain will eventually need regional help to bailout it's banks. However, ECB has already made clear that it opposed Spain's plan of government debt injection to Bankia, which in turn be used as collateral for ECB funding. It's doubtful how the government could come up with a EUR 19b rescue package for Bankia, not to mention the fund required for other banks. It should be noted that the top five banks' assets exceed 200% of Spain's GDP. Spain was downgraded by Egan-Jones , a US rating agency, to B from BB- noting that the country needs to provide "substantial financial support" to banks over the next couple of quarters due to "declines in home values, austerity measures and increased unemployment". |
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| Featured Technical Report | |
EUR/JPY Mid-Day OutlookDaily Pivots: (S1) 98.90; (P) 99.42; (R1) 99.91; More EUR/JPY's fall continues today and reaches as low as 98.28 so far. Intraday bias remains on the downside and the current decline from 111.43 is expected to continue to retest 97.03 low next. On the upside, above 99.38 minor resistance will turn bias neutral again and bring consolidations. But break of 102.11 resistance will be needed to indicate short term bottoming. Otherwise, outlook will remain bearish even in case of recovery. |
| Special Report |
Direct Yen-Yuan Trading Marks a Step Forward to Yuan InternationalizationJapanese yen (yen) and the Chinese Renminbi (yuan) will be allowed for direct trading from June 1. This is the first time China allows a major foreign currency, other than the US dollar, to trade directly against the RMB. While some analysts do not view this as an important issue other than reducing transaction cost and lowering settle risks, we believe this is one of the various steps that the Chinese government has taken for internationalizing the RMB. Going forward, the government would adopt further policies to promote the use of the RMB, increase the flexibility of the foreign exchange market and relax constrains in the capital accounts so as to transform the RMB into a truly global currency, Ireland's Ability to Access Bond Markets Not Certain although Fiscal Pact Likely ApprovedIt is likely that Ireland will pass the European fiscal pact on the referendum on May 31 as the latest polls showed that 60% of the voters supported the deal. Unfortunately, the market anticipates that the country might not be able to tap public funding later this year as the government planned. That means, the debt-ridden peripheral country in the Eurozone, despite its efforts in meeting the fiscal target and the return to growth in 2011, may need further bailout from the EU, the IMF or other international sources besides the 67.5B euro borrowed. |
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US Session: Orders and Options WatchEUR: The single currency dropped again in part due to the release of weaker-than-expected eurozone data and barrier at 1.2450 was tripped in European session, although some bids are tipped at 1.2405-10, stops below next barrier at 1.2400 are now in focus but fresh demand from semi-official accounts should emerge around 1.2360-70. On the upside, offers from macro funds and margin accounts (who were seen selling aggressively earlier) are lined up at 1.2470-80 and also at 1.2500-10, larger sell orders are tipped at 1.2550-60 with stops building up above 1.2580. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Trade Idea Update: USD/CHF – Buy at 0.9530Although dollar resumed recent upmove yesterday on breach of last week’s high of 0.9612 and gain to 0.9670 would be seen, loss of upward momentum should prevent sharp move beyond 0.9690-00 and risk from there is seen for a strong pullback to take place. Below the Kijun-Sen (now at 0.9618) would bring retracement to the Ichimoku cloud (now at 0.9570-76), then yesterday’s low of 0.9560 but renewed buying interests should emerge around 0.9529 and bring another rally later. Trade Idea: EUR/JPY – Sell at 100.30As euro has fallen again after consolidation and the breach of previous support at 99.37 confirms recent decline has resumed, suggesting further weakness to 98.50, then 98.00 would be seen, however, loss of near term downward momentum should prevent sharp fall below 97.50 and risk from there has increased for a corrective rebound to take place later. Candlesticks Intraday Trade Ideas Update Schedule (GMT): Elliott Wave Daily Trade Ideas Update Schedule (GMT): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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