• Outlines of EU debt deal taking shape; haircuts of 50-60%; EFSF leverage via SPV and insurance model, buying power said near EUR 1 trln
  • Chicago Fed National activity index improves to -0.22 in September from -0.59 in August
  • EFSF leverage options outlined; may be combined
  • ECB buys more Italian, Spanish debt today; bought EUR 4.5 bln last week, total EUR 169.5
  • IIF: There are limits to what can be considered voluntary in Greek restructuring
  • Trichet booed at university speech in Berlin
  • Berlusconi: Italy preparing new measures; no decisions at today’s cabinet meeting
  • Haircuts over 50% could could cause contagion: Head of French banking federation
  • Greek wants to include all private debt out to 2035 in restructuring plan
  • SNB’s Hildebrand repeats vow to defend CHF ceiling
  • Fed’s Dudley: Not out of bullets; open to more stimulus; could do another round of QE
  • Next Greek bailout vote to require super-majority
  • S&P 500 rises 1.3% to 1254, highest since August 4, before S&P downgrade
  • US 10-year note yield rises 2 bp to 2.23%
  • WTI soars $4.25 to $91.65; gold up $11 to $1653; copper up 7%

EUR/USD rose along with US equities and a reversal of losses in European equities as the market shrugged off poor European PMI and focused instead on upbeat Chinese PMI, strong US earnings and hopes for a comprehensive EU debt package. With the market quite short of EUR/USD, we retested (and slightly overshot) the European highs of 1.3953 (1.3957 was the US high) but was unable to close above key resistance around the 1.3940 level.

Cable continues to rally in a massive short-covering frenzy as the combination of a European meltdown and renewed BOE quantitative ease prompted the short-positions to reach huge proportions but have since also sparked a flight to the sidelines as expected sterling weakness did not unfold as planned. We reached 1.6008, triggering a barrier but staled after running into resistance at 1.6005.

AUD managed to trigger a barrier at 1.0500, bolstered by Chinese PMI and improved risk appetites in the States today. 1.0501 was the high. USD/CAD fell back toward parity.

USD/JPY was range-bound, dipping below 76.00 briefly but the market remains reluctant to push too aggressively to the downside for fear of rousing the BOJ. 75.98 was the low early in the session.