A series of negative themes kept risk currencies in check overnight with less than inspiring data from both side of the Atlantic continuing to weigh on global equity markets. While intermittent gains across the risk currencies may reflect a stronger appetite for risk, there remains a general reluctance from market participants to establish new long-side positioning. In essence, we’re seeing a short squeeze on risk currencies such as the Euro in an attempt to neutralise positioning ahead of critical event risk headed up by Greek elections over the weekend. Also critical to the short-term Euro fortunes is an Italian bond auction on Thursday which remains a key point of contention across markets given the contagion risk from Spain. Both Italian and Spanish borrowing cost continue to reflect a decidedly nervous market atmosphere with 10-yr yields rising to 6.22 and 6.77 percent respectively. European equity markets were mixed on the day with the FTSE rising 0.18 percent while the CAC and DAX fell 0.55 and 0.14 respectively.
After making another attempt to break US dollar parity, the Aussie dollar followed U.S equities lower in the latter hours of trade overnight alongside commodity counterparts the CAD and Kiwi. Heavy resistance ensued at parity before taking a leg-down alongside U.S stocks with the S&P erasing earlier gains to finish 0.7 percent lower. News of Moody’s downgrade of Spain and Cyprus also prove to be another hindrance on sentiment a day after Fitch downgraded 18 Spanish banks citing distressed loan exposures to construction and real-estate markets.
Nevertheless, this short squeeze allowed the Euro to move higher despite persistent anxiety from the region. The EURUSD pair made a break above resistance of $US1.2525 to highs of $US1.2610 before easing back below the figure in recent hours.
Across to the U.S, global uncertainty continued to hurt U.S retailers according to the latest trade report with sales falling 0.2 percent in May, against a previous downward revision of 0.2 percent. U.S producer prices recorded annual growth of 0.7 percent in May, falling short of the 1.2 percent growth expected, while the core prices rose were unchanged at 2.7 percent, slightly lower than the 2.8 percent estimated.
Local data today includes consumer inflation expectations with Japan due to release industrial production number this afternoon. At the time of writing the Australian dollar is buying 99.5 US cents, 79 euro cents and 79 Yen.