http://www.bloomberg.com/quote/GDBR10:IND
The two day move 49 bp. To 71 bp. Inflation data from EUnion was .3% in May
apparantly better than expected and a continuance of better than expected macro data from EU.
Keep it simple. EUR.USD and US treasury interest rates go up with German Bund yields.
Worth watching the 10 year Bund yield.
Euro range was apprrox 109-112. Greece rumors and streess a factor as well.
Drahgi will speak tommorrow regarding macro,QE and Greece.
US seems on hold for NFP Friday.
Following chart clearly shows the surprising US treasury bond rally of 2014. The short rates
Leg of the spread was dominant. With what was then a decent US macro story and a concern
Of US monetary policy ending QE and future rate hikes possible the bond market still rallied.
Capital was flowing into USD and US equities and leaving EU stocks, currency and sovereign bonds. Mid 2014 EU macro data signaled deflation and yields and currencies fell. Eventually
nehative EU sovereign yields were creeping out the curve 7 years and beyond. Due to this, interest rate differentials, US treasuries - German Bund reached all time with US yields falling relatively less than EU yields. The differential, not absolute rate ,is in theory ,what drives capital flows and it seemed to be true here.
Then catalyst for change. Largest red bar in USD of the year in late March 2015 after dovish interpretation of Yellin and FOMC. Treasury rally ended and Euro made first attempt to bottom at 105ish.
Euroland was in short euro , short DAX, short EU sovereign debt (front eunning ECB QE) crowded trade when first surprise macro data from EU regarding CPI and growth indicating
Deflation has ended. Big unwind . Euro and bund yields had been highly +corr and cointegrated
and continued to be in the EU bond route. Makes sense as euros are sold for bonds. The US treasury market yields have follwed EU yields closely as well from 2 years out with the sensitive long end yields rising in what they call bearish steepening.
So treasury/bund rate differentials are decreasing(some) as is USD , euro stocks EWG,EWP,EWQ,EWI are steady or rising, ECB QE is in progress with new supply of + yield sovereigns and will extend to 1trillion at 60 bln. / month. This seems to signal EU assets are more attractive than US assets.
I have read of Euro parity or the .82 low of many years ago but this sentiment has changed. The move from 139 to 105 might be the extent of the move and maybe it was effective to combat deflation. Seems the euro area is at least closing euro denominated assets. It will be interestig to see the furious defense of 114 and the squeeze if 115 is breached.
Will look for QE money to find its way into stocks and the euro risk currencyto rise with QE. Maybe weak US data requiring a DEC fed delay along with ECB QE can ignite a rally going forward. Hard to be bearish here aside from Greece stress.
