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Bond Market Update

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Date:2/10/2012 12:00:00 AM

Trade Balance: Briefing -$48.8B, consensus -$48.2B, prior -$47.8B (revised -$47.1B)

Michigan Sentiment (9:55): Briefing 75.5, consensus 74.0, prior 75.0

Treasury Budget (14): Briefing -$27.0B, consensus -$40.0B, prior -$49.8B

2:48 PM
10-Year:-06/32..2.055..USD/JPY:77.62..EUR/USD:1.3292
Small Losses: The dollar index holds a small loss of 0.2% as it holds near 78.55. The index has spent the entire session in negative territory after a couple of attempts at trying to regain the flat line. EURUSD is +30 pips at 1.3290 after a rather eventful day in the Eurozone. The European Central Bank met today and while it did not cut rates (held steady at 1.00%), it did expand its collateral requirements to allow countries easier access to its lending programs. Today’s strength in the single currency has run the pair up to its 100-day moving average, and has some traders concerned further short covering may provide a boost up to the 1.37 area. French industrial production is scheduled for release overnight. GBPUSD is +10 pips at 1.5825 after today’s Bank of England interest rate decision carried on as expected. The BoE held its benchmark interest rate steady at 0.50% and announced a GBP50 bln increase to its asset purchase program, both of which were expected. The pair’s 200-day moving average will provide a short-term lid as sellers are likely to reemerge in the 1.59 vicinity. Britain’s PPI Input will cross the wires early tomorrow morning. USDCHF is -5 pips at .9115 as action continues to hover above important .9100 support. The Swiss National Bank is breathing a sigh of relief as recent strength in EURCHF has the cross above 1.2110. Switzerland’s CPI will be released tomorrow morning with deflation likely to persist.



USDJPY is +60 pips at 77.60 with today’s buying pushing right through both the pair’s 50- and 100-day moving averages. The pair is now trading at its best levels since January 26, but traders should be aware the 200-day moving average lies near 78.00 and will likely limit further gains. AUDUSD is -5 pips at 1.0790 as trade stalls at six-month highs. A clean push through the 1.08 area is likely to result in a retest of the pair’s record high near 1.11. The Reserve Bank of Australia’s Monetary Policy Statement will be released.

USDCAD is -15 pips at .9945 as trade continues to hold near the pair’s 200-day moving average. The .9900 area will provide near-term support with 1.01 now acting as resistance. Canada’s trade balance is due out tomorrow morning.
7:06 AM
10-Year:+16/32..1.980..USD/JPY:77.72..EUR/USD:1.3235
HIghs: Treasuries are at their best levels of the session as markets remain on edge over the outcome of the Greek bailout and debt swap talks. Jean-Claude Juncker, the head of the Eurogroup, is now insisting that Greece turn the austerity measures into law before the next bailout tranche is released. The latest Chinese trade balance number ($27.3 bln actual v. $10.8 bln expected) is raising some concerns as imports tumbled 15%, suggesting a slowdown may be on the horizon. An advance of 21/32 has the long bond leading the way today as it holds at session highs near 99 20/32. Today’s aggressive bid has yields lower across the curve with the belly seeing a drop of more than 5 bps. The benchmark 10-yr yield has eased back below 2.00% to 1.988%. Flattening along the yield curve has caused the 2-10-yr spread to narrow to 173 bps. Meanwhile, precious metals are lower with gold down $19 at $1722 and silver off $0.30 near $33.60. Today will see the trade balance (8:30), Michigan Sentiment (9:55), and the Treasury budget (14).
7:40 AM
10-Year:+17/32..1.974..USD/JPY:77.73..EUR/USD:1.3202
Strong Dollar: The dollar index has pushed to session highs near 78.90 as Greek rescue talks remain unsettled. Jean-Claude Juncker, the head of the Eurogroup is now insisting that Greece turn the austerity measures into law before the next bailout tranche is released. EURUSD is -80 pips at 1.3205 as worries over the possibility of a Greek default are weighing on the single currency. Recent headlines have crossed indicating Greek Laos leader Karatzaferis says he can’t vote for the bailout agreement in its current form. EURUSD has been under a steady stream of selling from the get go, opening at session highs. French industrial production was out overnight and fell short of expectations (-1.4% MoM actual v. -0.4% MoM expected). GBPUSD is -35 pips at 1.5780 with today’s selling dropping the pair below near-term support in the 1.58 area. British PPI Input climbed 0.5% MoM (0.4% MoM expected), and has tempered losses in the pair. USDCHF is +45 pips at .9160 after Swiss CPI fell a greater than expected 0.4% MoM (-0.3% MoM expected). Today’s gains have lifted the pair off the .9100 support level and have it testing overhead resistance aided by its 100-day moving average. EURCHF has slipped back below 1.2100 and now trades 1.2090.



USDJPY is +10 pips at 77.75 as the pair is on track for its sixth consecutive day of gains. There have been some rumblings of stealth intervention by Japanese authorities, but the 78.00 are will look large with the pair’s 200-day moving average lending a helping hand to resistance. AUDUSD is -130 pips at 1.0655 after the Reserve Bank of Australia lowered its 2012 full-year GDP outlook to +3.5% from +4.0%. Also weighing on the hard currency was the Chinese trade balance number ($27.3 bln actual v. $10.8 bln expected) which showed imports tumbled 15% while exports fell 0.5%. USDCNY weakened to 6.2921.

USDCAD is +80 pips at 1.0020 and has climbed back above parity for the first time in a week. Today’s bid is a welcome sign for bulls as the pair has finally been able to lift off its 200-day moving average. Canada’s trade balance is due out this morning.