Key Take Away: Ranges Hold

The most important development in the foreign exchange market is that the ranges held.  Even though the euro edged through $1.3000 yesterday, it quickly bounced back.  Sterling held support near $1.58.  The dollar is holding above the JPY80.00 level.  

European shares rallied, even though Asian shares edged lower (though India's market posted more than 1% gains after the central bank delivered the first rate cut in three years and a 50 bp move rather than the 25 the market expected).   Financials are bouncing back and is the strongest sector today in the Dow Jones Stoxx 600.    Peripheral bond yields are mostly lower, including Spain and Italy, though Greece is bucking move and the 10-year yield is up almost 20 bp to 20.34%. 

The Spanish and Greek bill auctions went smoothly.  Thursday poses a larger challenge as Spain sells bonds, and given the tensions and disappointing auction last week, even though the government is well ahead on its issuance, makes this week's auction all the more important. 

France also sells bonds Thursday, a few days ahead of the first round of the presidential election.  Polls suggest the first round has tightened up.  The second round is of course decisive and here Hollande is still running ahead of Sarkozy, 

Germany has offered the surprise of the day, with the unexpected improvement in the ZEW survey.  Both the current situation and economic sentiment indicators gains, whereas the consensus had called for continued weakness.  This helped spur another leg up in the euro .  One aspect that will offer much fodder for discussion is the fact that the ZEW's inflation measure rose and was positive for the first time in almost a year. 

While Sarkozy appears to have broken ranks with Germany in criticizing the ECB, his call for more pro-growth policies from the central bank does speak to the interest of many in Europe.  However, for Germany, ECB monetary policy may be too easy.  While Sarkozy talks of the benefits of a soft euro (for exporters), for Germany the euro is too weak. 

The minutes from the Reserve Bank of Australia are sufficiently dovish to keep the market looking for a rate cut in early May barring a significant upside surprise in the Q1 CPI figured due out next week.   The Australian dollar slipped to almost $1.0300 and has bounced smartly and is challenging yesterday's high as the North American market is set to open.  The upper end of the near-term range extends toward $1.0450. 

The Bank of Canada is expected to leave policy steady and may upgrade its economic assessment.   The greenback pokes above the CAD1.0 level and frays the upper end of the greenback's range, the area is holding (more or less) and the bottom of the near-term range is near CAD0.9900.