The U.S. dollar was mixed on the day vs. the majors as markets search for direction ahead of Friday's European stress test results. The euro made a marginal new high for the cycle vs. the dollar at 1.3029 but lack of any follow-through has led to a move back to 1.29 as the North American session starts off. The euro is being helped by successful European bond auctions Tuesday, but we repeat our warning that while the dollar is likely to remain under pressure due to recent technical damage and the weaker U.S. economic outlook, the euro is feeling a little heavy right now.

The yen was mixed, while the Swiss franc was mostly firmer. Emerging markets forex was mixed too, while we continue to see heightened risks for the weaker emerging markets credits as risk appetite remains very choppy. The biggest gainers on the day so far vs. USD are AUD, NZD, KRW, MYR, and ZAR, while biggest losers vs. USD so far are HUF, PLN, INR, CZK, and RON. AUD is outperforming after Reserve Bank of Australia minutes suggested that the tightening cycle is not yet over. Official China comments continue to be cautious, leading markets to pare back yuan appreciation views.

Asian markets were mostly higher, as MSCI Asia rose almost 1% Tuesday to recoup most of Monday's losses. China outperformed again, with the CSI 300 up over 2% on the day. Thailand, India, and the Philippines underperformed and ended down on the day, as did Japan. European markets were lower so far Tuesday, with Euro Stoxx 50 down over 1%. Futures markets are currently pointing to a down open for U.S. equity markets Tuesday.

The U.S. bond market is likely to continue benefiting from safe-haven flows as concerns about weak U.S. growth remain in play. Japan bond market was lower, with 10-year yields up 1 basis point, while European bond markets were mostly higher as 10-year yields in the U.K., France, and Germany were down 1 basis point, 2 basis points, and 1 basis point, respectively. Greek 10-year yields were down 4 basis points, Portugal down 3 basis points, Ireland down 10 basis points, Italy down 5 basis points, and Spain down 4 basis points. Peripheral bond auctions went well Tuesday amidst heavy supply.
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