Short squeeze promotes short-term upside; risk currencies run out of steam | May 29
It's been a solid start to the week accross the risk spectrum driven by talk of a rescue fund for troubled Euro-region banks and encouraging opion polls from Greece which suggest conserative parities will fare better at the next election. With U.S markets closed for Memorial Day, European markets set the trend but erased earlier gains by the close with key benchmark indices the CAC and DAX finishing 0.16 and 0.26 percent lower while the FTSE managed to squeeze out a 0.1 percent gain on the day.
The Australian dollar is leading the risk currency charge higher with strength accross major counterparts, but with little fresh news to keep the momemtum going, strength seen earlier in the session died out by the close. We've seen a series of stabalising factors assist in a notable rebound from risk currencies, but market participants remain unconvinced we're seeing a material shift in sentiment given the major questions marks surrounding the future of the European Union. Given this recent theme of negativity, we've seen a significant build up in short positioning accross risk assets with recent commitment of traders report suggesting AUD and EUR shorts positions have never been greater, while USD long positioning is the strongest seen since 2008. Importantly, a slight upside shift in sentiment can often promote a sharper reversal given the squeezing out of short positioning, albeit for a short period of time.
The Euro's ascent has been moderate in comparison to its risk counterparts with the EURUSD pair running into resistance around the $US1.2620 after the local close with the pair - for the most part - maintaining a downward trajectory overnight. Supportive behavior is noted around the $US1.2520/30 region. Meanwhile, Spanish bond yeilds continue to rise as the nation prepares to rescue it's largest financial institution Bankia. The premise of Spain recapitlising the troubled bank with soverieign paper is attracting negative attension which has detracted from the other more positive themes accross markets. Local economic data today includes HIA New home Sales at 11am AEST.