Week in FX Europe – German Bond Traders Just As Bewildered As FX Dealers

The past week has more to do with the flight of the Yen rather than the rise of the EUR. The dollar was beaten down during a liquidity fire sale ahead of a QE tempering employment argument release, rather than the market love for a “unionized currency” that was temporarily pushed to test new quarterly highs. The 17-member single currency recent strength has mostly been a direct byproduct of dollar positioning under threat ahead of a highly influential US data point.

Now that the NFP release has come and gone, and an FX market no more the wiser on the Fed tapering QE question front, will surely lead to an volatile summer for most asset classes. Expect investors to find themselves living from one fundamental benchmark to another.

The supposed backbone of Europe, Germany, will hold two bond auctions next week. It comes at a time when the Euro-zone bond market is being heavily influenced by the “possible timing and speed of the Fed’s plan to scale down its bond-buying program.” Last Friday’s US employment results should make taking down the auctions a wee bit easier. The total German sales will be €16- billion. To date, Bund yields have bee rising since the end of last month, mostly on the back of Fed members implying that it was considering reducing its bond purchase.

Also next week, the ECB pledge to buy bonds under the OMT program comes under German constitutional scrutiny on Tuesday, a day after what historically is the quietest trading day of the month – the first working session after NFP (investors will want to lick their wounds and figure out the Fed’s next possible move). Do not expect any German constitutional decision ahead of September’s federal elections.

• German Central Bank Cuts Country Growth Forecast
• First Time Monthly UK Exports to China Reach 1 Billion
• EU in worse shape compared to Greece
• Moody’s cautious over Debt Markets in Nordic region
• European Comission Denies Greece Bailout Claim
• ECB Revises Down EU Growth Forecast
• IMF Report Shows it Bent Rules in Greece Bailout
• French Unemployment Rises to 15 Year High
• Swiss CPI Falls 0.5 Percent in May
• Bank of England Holds Rate at 0.5 Percent Leaves QE Unchanged
• IMF Admits to Poor Handling of Greece Bailout
• IMF Praises French Reforms
• EU GDP Decline Slows Down in April
• IMF Warns France About Lowering Labor Costs
• UK Retail Sales Rebound
• Germany to Provide Loans to Spanish SMEs
• IMF Revises Germany Growth Downwards Due to Uncertainty
• Eurozone Manufacturing Rose in April
• ECB’s Draghi says EZ on Track for Recovery

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