US Dollar Continues To Come Under Broad Based Selling With No Respite In Sight

Yesterday’s (Thursday)  final US treasury auctions of $26bn of 7yr notes went off without a hitch. In a week which saw $101bn of new supply entering the market, investors’ worries were calmed as bid-cover ratio and percentage awarded to indirect bidders matched auctions in the past. So it looks like for now the foreign demand for US debt is unchanged. However, as we had mentioned in the past if there was a shift in central bank policy now would not be the opportune time to make it known. Investors celebrated the non event by trading into equities pushing the S&P (^GSPC: 919.14 +12.31 +1.36%) up 1.54% and 10yrs yields falling to 3.61%. This rally comes on the back of mixed US data, which showed durable good rising 1.9% (prior revised lower to -2.1%) yet mortgage delinquency rose to a new high of 9.1%.

The USD continues to come under broad based selling with no respite in sight. Commodities and commodity currency rallied on renewed risk appetite with the AUD/USD climbing above 0.7950 level. The EUR/USD traded through the 1.4050 resistance and the GBP/USD broke through 1.6100. The media has been buzzing with the speculation that GM (GM: 0.75 -0.37 -33.04%) is planning on filing for bankruptcy protection on June 1st, following the governments attempts to restructure the company. While the move has been widely expected, just the fact that a firm this size would actually file has captured the markets’ imagination. We don’t expect any spillover into risk aversions should the firm move in this direction (as early as Monday).

Yesterday, the Eurozone Consumer, Economic, Industrial and Services confidence indicators came in largely as expected continuing its upwards slope. German unemployment continued to climb, with the ILO figure slightly higher at 7.7% as expected and the headline rate at 8.2%. In Japan , CPI and industrial production data both surprised to the upside. The National headline CPI fell by only 0.1%y/y, a figure that might help ease deflation fears. However, the BoJ is well aware that the country is not in the clear just yet . Industrial production managed a 5.2%m/m expansion, pushing the y/y figure to -31.2%y/y, slightly better than expectations. The unemployment rate, however, increased to 5 .0 % from 4.8% previously, the highest level in over 5 1/2 years. And as the government has expressed, along side recent economic upgrades, that without a recovery in the labor markets the downside risk to the economy is still a reality.

Today, US preliminary Q1 GDP, Chicago PMI and the University of Michigan confidence index come out and as the markets are watching for more proof of green shots, these will be critical.

The Risk Today:
Eur/Usd pair blew through all near term resistance in european session as the USD was sold across the board. Break above 1.4057 high reinstates bullish theme. Little resistance until 1.4180 then on to 1.4220. 1.4050 should act as intraday support.

Gbp/Usd following the eur’s lead, the pair took out resistance. A weekly close above 1.6040 suggest further gains to 1.6195 then a trigger to 1.6310 area. 1.6089 should act as intraday support.

Usd/Jpy in this USD bearish environment Jpy was able to reverse in cloud cover. A break of 95.66 span and trendline support suggests move a move back to 94.00 key support.

Usd/Chf downside pressure easily broke 1.0811, an currently is probing 1.0707 ahead of 1.0611. Intra-day heavy below 1.0953. <!–