- Spain downgraded to AA from AA+ by S&P; Outlook negative
- German lawmakers says Greek package to reach EUR 100-120 bln over three years
- Trichet, Strauss-Kahn refuse to confirm aid figures, say talks ongoing
- Merkel: Greece cannot be allowed to sufferLehman-like collapse
- FOMC leaves rates unchanged, retains “extended period” language, upgrades outlook modestly
- German HICP -01% in April m/m, up 1.0% y/y, lower than expected
- US sells $42 bln 5-year notes at 2.54%, bid to cover 2.75
- S&P 500 rebounds modestly, rises 0.7%; commodities mixed, CRB up 0.5%
Early focus was on Berlin, with rumors swirling that the EU/IMF would unveil a larger package than the market has been expecting. Those rumors were partially confirmed as German MPs say they were told behind closed doors that the package will total between EUR 100 and 120 bln over three years, essentially covering all of Greece’s projected funding needs. Trichet nor Strauss-Kahn would confirm the figures.
EUR/USD reached 1.3265/70 resistance on hopes for a larger bailout but prices slumped after the lack of confirmation. We fell back to 1.3175 and were rebounding from those levels when news of the Spanish downgrade sent EUR/USD to fresh lows for the trend at 1.3114. We recovered during the afternoon after the FOMC maintained the status quo, with EUR/USD approaching the 1.3210 level from which it plunged after the downgrade du jour. 1.3260/70 is important resistance for EUR/USD in the near-term as stops from short-term specs are now clustered above that level.
USD/JPY was unnaturally bid throughout the session amid widespread talk of a fresh wave of Japanese offshore investment. JPY crosses rebounded as well, even EUR/JPY despite the European sovereign debt woes. AUD/JPY was a star, supported by last nights firm Aussie CPI data which improved the odds for an RBA hike.
USD/JPY closes at 94.11, AUD ends at 0.9250, CAD at 1.0085 (from London highs near 1.02!) and cable rebounded to 1.5200 from intraday lows of 1.5126.