Market Update

Data Reaction: Treasuries are at their worst levels of the session after the stronger than expected housing starts and building permits data. The complex drifted to its lows ahead of the data, and some continuation selling has occurred following the data’s release. The long bond leads the complex’s decline, trading down 25/32 at 100 27/32 while a less pronounced decline of 11/32 has the 10-yr down to 99 15/32. After briefly popping above 1.81%, the 10-yr yield has slipped to 1.801%. A slightly steeper yield curve has the 2-10-yr spread wider at 150.5 bps. Precious metals are off their worst levels with gold at $1540 and silver near $27.50.  

Weaker Pound: The dollar index is holding modest gains as action holds near 81.40. EURUSD is -10 pips at 1.2720 with today’s selling dropping the pair to its lowest level since January 17. Traders are watching the January lows near 1.2650 with a breakdown likely setting up a test of the 2010 low near 1.19. Early reports indicate a second Greek election will be held on June 17. Eurozone CPI was unchanged from last month, holding at 2.6% YoY. GBPUSD is -65 pips at 1.5930 after the Bank of England Inflation Report indicated the central bank reduced its growth outlook for 2012 to 0.8% (1.0% previous) while suggesting it expects inflation to remain above target until the second half of next year. The news wasn’t all bad as Britain’s claimant count change posted a better than expected -13.7K (4.9K expected) while the unemployment rate eased to 8.2% (8.3% previous). Today’s weakness has the pair now looking to test its 200-day moving average near 1.5830. USDCHF is +5 pips at .9440, and is looking for its thirteenth straight day of gains. The small bid comes after Swiss ZEW Economic Expectations fell to -4 (2.1 previous). Meanwhile, EURCHF is flat at 1.2010 amid another quiet session.      



USDJPY is +30 pips at 80.50 as trade works its way off 80.00 support. Today’s strength comes after Japan’s core machinery orders topped expectations but fell sharply from its previous reading (-2.8% MoM actual v. -3.4% MoM expected, 2.8% MoM previous). Also released was the tertiary industry activity reading which missed expectations with a -0.6% MoM reading (-0.3% MoM expected). AUDUSD is -10 pips at .9925 after holding .9900 support. Today’s weakness comes after Westpac Consumer Sentiment posted a 0.8% reading (-1.6% previous), and the Wage Price Index rose 0.9% QoQ. The hard currency has been under severe selling pressure in the month of May, slipping more than 500 pips. USDCNY strengthened to 6.3249.   

USDCAD is +25 pips at 1.0090 after finally pushing through its 200-day moving average. Bulls now look to push the pair through resistance in the 1.0100 area. Canadian manufacturing sales are due out later this morning.

Little Changed: Treasuries are little changed this morning after holding small gains for most of the overnight session. Nothing new has surfaced from Europe, and more specifically Greece, but there were rumors of an emergency European Central Bank meeting. The long bond is the lone maturity in positive territory, trading up 9/32 at 101 30/32. Meanwhile, a flat session for the 10-yr has its yield holding at 1.775% after hitting an overnight low of 1.748%. Slight flattening of the yield curve has developed as the 2-10-yr spread trades tighter at 148.5 bps. Elsewhere, precious metals are seeing further selling pressure with gold down $21 at $1536 and silver off $0.70 at $27.35. Data remains heavy as the weekly MBA Mortgage Index (7), housing starts and building permits (8:30), industrial production and capacity utilization (9:15), and the FOMC Minutes (14) cross the wires.

Flat: Treasuries finished flat after early selling following this morning’s better than expected Empire Manufacturing number was erased as equity markets deteriorated over the course of the afternoon. The early weakness saw the 10-yr yield push above the 1.80% level, but it fell back down to 1.777% by the end of the session as European worries once again pushed to the forefront. Traders are now watching the 1.695% level for the 10-yr yield as a move through there would represent a record low print. Meanwhile, the 5-yr yield is less than 5 bps from its record low after settling today’s session at 0.733%. Flattening of the yield curve persists as the 2-10-yr spread is tighter at 149 bps. Elsewhere, precious metals were hit hard with gold falling $16 to $1545 and silver sliding $0.70 to $27.65. Data remains heavy on Wednesday as the weekly MBA Mortgage Index (7), housing starts and building permits (8:30), industrial production and capacity utilization (9:15), and the FOMC Minutes (14) cross the wires.  

12-Day Winning Streak: The dollar index is higher for a twelfth consecutive session as Greek worries remain at the forefront. Early headlines indicated Greek leaders were unable to form a coalition government, and that a new round of elections will be held in the coming weeks. This of course has markets worried the new government may decide to pull the plug on the country’s euro experiment. EURUSD is -90 pips at 1.2735 as action slips onto the mid-January lows. Traders are now focused on the 1.2650 level with a breakdown likely resulting in a retest of the June 2010 lows near 1.1900. Eurozone CPI will be released tomorrow. GBPUSD is -85 pips at 1.6010 with weakness coming on the heels of this morning’s wider than expected trade deficit. Today’s selling has dropped sterling to the 1.6000 support level with a test of the 50-day moving average near 1.5970 looking likely. Britain’s employment data is due out early tomorrow morning, and will be followed by the Bank of England Inflation Report and Governor Mervyn King’s press conference. USDCHF is +65 pips at .9430 and is on track for its best close since January 17. Meanwhile, a flat trade in EURCHF has action stuck at the 1.2010 level. Switzerland’s ZEW Economic Expectations will be released tomorrow.



USDJPY is +45 pips at 80.30 as buying has finally lifted the pair off its 100-day moving average. Bulls now have their sights set on 80.50 resistance with a push through that level setting up a test of 81.00. Japanese data out tonight includes core machinery orders and tertiary industry activity. AUDUSD is flat at .9955 and back near session lows. Short-term support in the .9900/.9950 area will be followed closely. Australian data scheduled to cross the wires this evening is limited to Westpac Consumer Sentiment and the Wage Price Index.

USDCAD is +10 pips at 1.0040 as bulls continue to press the pair’s 200-day moving average. The 1.0100 area remains important resistance with a push through that level likely leading to a test of the 2012 highs near 1.0275. Canadian data is limited to just manufacturing sales.

Data Reaction II: Treasuries are seeing little reaction to the latest data batch as business inventories met expectations while the NAHB Housing Market Index posted a beat. Maturities across the complex hold small losses during what has been a rather choppy trade. The complex slipped to session lows following this morning’s Empire Manufacturing beat, but quickly reversed back to unchanged on the headlines indicating Greece will undergo another round of elections. Light selling has yields at the back of the curve up as much as 2 bps as the 10-yr is higher by close to 1 bp at 1.779%. Little change along the yield curve has the 2-10-yr spread holding 150.5 bps. Meanwhile, precious metals are lower with gold down $6 at $1555 and silver off $0.25 near $28.10.