Dollar Mostly Softer vs Major Currencies

The U.S. dollar was mostly softer vs. the majors Monday as earlier risk aversion during the Asian session has been reversed during early European trading.

Overall, foreign exchange trading has been in very narrow ranges, but the euro is seen remaining under pressure as peripheral bond markets have yet to recover from recent spread widening. The next big level for EUR is seen at 1.26 but for now, the single currency is finding modest support around 1.27. The yen is mostly firmer Monday as policy-makers did not talk about forex intervention, while the Swiss franc was mostly weaker after making a new cycle low in EUR/CHF (see below) on Swiss National Bank comments.

Emerging market currencies were largely softer, with Asian currencies outperforming and Europe, the Middle East and Africa underperforming. Biggest gainers vs. USD so far Monday are THB, ILS, JPY, NZD, and AUD, while biggest losers are PLN, HUF, TRY, CHF, and CNY. The fact that CNY is one of the biggest movers underscores how narrow trading ranges have been Monday. No major U.S. data is out Monday, but recent technical damage on top of weaker-than-expected eurozone PMI data points to further EUR losses. AUD has stabilized after being hit during the Asian session as election results point to a hung parliament.

Asian equities were little changed, with the MSCI Asia-Pacific Index posting a small 0.1% rise after dropping 1.4% Friday. Indonesia, Malaysia, and Taiwan outperformed, while Hong Kong, Korea, and Singapore underperformed and fell on the day. The Nikkei 225 posted a 0.7% drop. European bourses were trading higher Monday. U.S. shares are likely to stage a bounce too as futures trading points to higher opens for the major U.S. indices.

Core bond markets were steady in the wake of the recent rise in risk aversion. The Greek-German spread has narrowed 2 basis points to +846 basis points but remains near the highs. Portugal, Ireland, Spain, and Italy 10-year spreads are mixed, with the former two wider and the latter two narrower so far Monday.

U.S. Treasuries have regained some traction on the flight to quality trade, with 10- and 30-year yields 1 basis point higher on the day.

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