Right Noises, Logjams Weaken?

Embattled officials in both the US and Europe appear to be making the right noises and this has served to spark a further recovery in most major and emerging market currencies.  The dollar has traded on both sides of yesterday's range against the yen.  Although it has recovered the JPY79 area is now offering resistance.  Elsewhere the Canadian dollar is extending yesterday's gains scored on the back of a central bank statement that brought forward rate hike expectations.  Reports that CNOOC is to buy failed Calgary oil company for $2.1 bln may be providing incentive ahead of the Bank of Canada's monetary policy report. 

The particular details of the US debt ceiling negotiations and the different alternatives Europe is discussing seems less important currently than the fact that in both situations, the indications give the markets some hope that some resolution is possible.  This has seen further recovery in peripheral bonds, pressure on core bonds, and narrowing spreads.  Credit default swap prices ahve also eased.   Gold is flat.  Equities building on yesterday's gains and generally strong US earnings. 

In the US the deadlines all seem to be a bit softer.  There had been ideas that given the time it will take to write and pass a bill, an agreement is needed by July 22.  However, this seems less fixed.  There is hope that the Gang of 6 talks break the logjam, but in the end this seems more about 2012 strategies.  This suggests greater risk of that debt ceiling gets lifted a  result of Obama and Democrats in Congress.  That will crystalize the issues for next year's campaigns. 

Merkel and Sarkozy meet in Berlin today and the two pillars of Europe try to break their own logjam ahead of tomorrow's summit.   Given the expectations, and assuming extension of current price action in North America today, risk is that Merkel was right yesterday when she warned against expecting spectacular results.  

The levels mentioned yesterday here--$1.4300 and $1.62 for the euro and sterling respectively still seem likel reasonable near-term objectives.  I had thought there was potential toward JPY78.50.