Mid-Day Report: Euro Rebounds as Selective Greek Default Ruled Out
Although the single currency extended weakness to a fresh 4-month low against the greenback and Japanese yen on growing concerns that eurozone's debt crisis would spread to Italy, euro recovered as Luxembourg Finance Minister Luc Frieden said selective default on Greek debt is not an option seen by eurozone finance ministers. EU leaders would hold an additional summit on Friday to discuss the debt crisis. There are also talks that the ECB and Asian sovereign name (rumors to be China) were seen buying peripheral debt which indirectly supported the single currency, euro quickly bounced from 4-month low of 1.3838 to above 1.4000. Risk appetite buying against Japanese yen was another reason behind the almost 200 points rebound as Dow Futures pared most of its 150 points losses, Asian sovereign names were seen buying euro from mid-1.38 to 1.3900 and bid from same parties are tipped from 1.3950 down to 1.3900 (option related) with stops building up below 1.3900 and 1.3830, more stops remain at 1.3800. On the upside, offers from various parties are reported in the region of 1.4050-1.4070.
The result from an Italian bond auction also helped lifting euro from low as Rome was able to sell one-year paper, though at much higher yields. This result also eased worries about the euro zone's ability to prevent debt problem in Portugal, Greece and Ireland from spreading to Italy and Spain.
The Japanese yen jumped in European session to a highest level since mid-March against the greenback to 79.17 on renewed risk aversion on selloff in Asian equities (HSI down 684 points or over 3% and Nikkei also dropped 143 points and 1.43%), there are talks of a large option barrier at 79.00 with stops planted below there and offers are reported from 80.50 all the way up to 81.00.
The British pound also down to a 5 ½ month low of 1.5781, the release of lower-than-expected UK June CPI data (-1.0% m/m and 4.2% y/y vs market consensus of 0.2% and 4.5% respectively), core CPI also came in lower at 2.8% against forecast of 3.3%; RPI also showed a below expected numbers at 0.0% m/m and 5.0% y/y vs forecast of 0.3% and 5.2% respectively. However, sterling then rebounded in tandem with euro also on buying by Asian sovereign names and the release of weaker-than-expected U.S. trade balance data was seen pressuring the greenback, a nominal trade deficit of US$50.2 billion (widest trade gap in 31 month) whilst economists were expecting $44.0 billion deficit following a $43.6 billion gap in April. We heard offers will return around 1.5900 and more at 1.5930-50 whilst bids are tipped from 1.5820 down to 1.5800 with stops building up below 1.5800 and more at 1.5770-80.
Elsewhere, whilst the greenback surged initially to an intra-day high of 0.9780, the Lonnie has rebounded in New York morning on broad-based retreat in the greenback, easing of eurozone debt crisis contagion was another factor lifting the Canadian dollar, EU officials said there won't be defaults in the eurozone and Italian Prime Minister Silvio Berlusconi also emphasized that the stability of Italian banks. Some bids are tipped at 0.9650 and 0.9600 whilst offers are lined up from 0.9780 to 0.9810-15.