@Aurelija's

Another week dominated by the headlines of the European crisis. But Greece has come out off the spotlight for now - Italy is the current hot topic. The Italian bond yields shot up to over 7%, and, had it not been for the ECB's traders, they could have gone even higher.

So, yes, ECB is currently the buyer of last resort for the European debt which fewer and fewer are willing to hold. The problem is - neither does ECB want to continue doing this. I heard numerous comments on Thursday and Friday from ECB members, claiming basically that this what they are doing is not going to solve the crisis, and that they are not going to do it for a long time anyway.

On the other side of the Atlantic Ocean things get better and better every week, with the week behind being no exception - the jobless claims, consumer confidence data came out better than expected. This actually helped lift the EUR/USD up on Friday.


While in normal times good macro news from the US would help the USD strengthen, in these nervous days the USD index serves as the risk appetite indicator - thus USD strengthens on "risk off", and, vice versa, weakens when things seem to go better - not least if that good news comes from the US (and implies monetary policy easing is no longer needed).

But looking at the interest rates, the spread between 2Y EUR and USD interest rate swaps continues to move in the USD favor, thus actually showing the fundamentals are reflected in the markets. The EUR/USD trend is thus fundamentally in tact. The only problem is, however, that the volatility is huge - and those "risk off" strengthenings of the USD are followed by disproportional weakenings once risk gets "on" again. Overshooting is the name of the game for now.


Another Italian bond auction tomorrow. Another week of testing ECB's willigness to act as a lender of last resort. And Tuesday - another piece of data, preliminary euro are GDP, will probably once again show the region is in deep trouble macro-wise. If data comes weaker than consensus expect - USD may strengthen in figures again.