Updated: 26-May-11
The market at 15:52 ET
10-Year: +20/32....3.061%.... GNMAs: .... USD/JPY: 81.34.... EUR/USD: 1.4067
Moving the Market
GDP -Second Estimate: Actual 1.8%, consensus 2.0%, prior 1.8%
GDP Deflator - Second Estimate: Actual 1.9%, consensus 1.9%, prior 1.9%
Initial Claims: Actual 424K, consensus 400K, prior 409K (revised 414K)
Continuing Claims: Actual 3690K, consensus 3700K, prior 3711K (revised 3736K)
Fed purchases $6.03B worth of 2013-2015 maturities through POMO
Treasury auctions $29B 7-yr notes, draws 2.429%
15:52 ET 10-Yr: +20/32..3.061%.. USD/JPY: 81.34.. EUR/USD: 1.4067
5.5-Month Highs: Treasuries finished at their best levels of the session as poor economic data and comments from Euro Group President Jean Claude Juncker started the rally this morning, and the strong 7-yr auction propelled this afternoon's gains. Overnight selling ran the benchmark 10-yr up to 3.16%, but by the end of the day the yield was hovering near 3.06%. Yields across the complex finished at their lowest levels since early December as all closed below their 200-day moving averages. The 2-10-yr spread finished at its flattest levels of the session at 257.4, and once again closed below its 260 support. Further flattening is appearing more likely with 240 support looking attractive. Precious metals saw modest losses with gold falling six dollars to 1521 and silver slipping 35 cents to 37.30. Friday has personal income, personal spending, PCE Prices-Core (8:30), Michigan Sentiment-Final, and pending home sales (10).
14:54 ET 10-Yr: +19/32..3.067%.. USD/JPY: 81.32.. EUR/USD: 1.4131
Afternoon Lows: The dollar index is trading at its lowest levels of the afternoon, slipping to 75.50. EURUSD has seen a nice recovery from this morning's lows, climbing 80 pips off its worst levels of the day. A return to risk in the afternoon has propelled the single currency to a gain of 60 pips as its trades near 1.4140. Data out tomorrow includes German preliminary CPI, and euro zone M3 money supply. GBPUSD has been among the best performing of the majors all session long, adding more than 120 pips as it tests session highs near 1.6395. Buyers have run cable back above its 50-day moving average (1.6310) and to a gain for a third consecutive session. British GfK Consumer Confidence will be released tonight and nationwide home prices are due out overnight. USDJPY trades down close to 80 pips, and will see its worst close in more than a week. Today's sell off has knocked the pair down to 81.25, and has ended an eight-day winning streak. The .8700 level offered little support for USDCHF with the pair crashing through it to its current .8655. The pair should be followed closely as the all-time low lies just 100 pips lower at .8554. Swiss KOF Economic Barometer will surely have an impact on tomorrow's trade. AUDUSD is the top performer in the complex today, gaining 1.0% and threatening last week's highs. Today's 110 pip gain has the Aussie back up to 1.6335 with last week's 1.07 within reach. USDCAD trades flat at .9775 as it looks to hold its 100-day moving average (.9756). Click here to see a daily AUDUSD chart.  
13:58 ET 10-Yr: +15/32..3.085%.. USD/JPY: 81.23.. EUR/USD: 1.4113
Auction Reaction: Treasuries rallied to their best levels of the session following the strong 7-yr note auction. The auction drew 2.429% and saw 3.24x bid/cover as 47.6% of the supply was taken down by indirect bidders. 30-yr futures are back above their 200-day moving average, hitting their best level since December 1. Buying in the 10-yr briefly dropped it below its 200-day moving average to 3.07%, its lowest level since early December, but some light selling has it back near 3.09%. Yield curve flattening continues with the 2-10-yr easing to 258.3. Precious metals are stuck in negative territory with gold near 1521 and silver at 37.20. Today's auction concluded a successful week for supply as all three auctions saw solid demand. Click here to see a 5 minute 10-yr yield chart.
13:06 ET 10-Yr: +14/32..3.080%.. USD/JPY: 81.37.. EUR/USD: 1.4123
Auction Up: $29 bln 7-yr not auction draws 2.429%, 3.24x Bid/Cover, 47.6% Indirect Bidders, 13.0% Direct Bidders

Auction sees strong bid/cover, Treasuries seeing light buying on results.
12:08 ET 10-Yr: +15/32..3.083%.. USD/JPY: 81.42.. EUR/USD: 1.4088
$29B 7-yr Note Auction Preview:

Previous auction drew 2.712%, 2.63x Bid/Cover, 38.7% Indirect Bidders, 7.8% Direct Bidders

10-auction averages: 2.453%, 2.85x Bid/Cover, 38.7% Indirect Bidders, 7.6% Direct Bidders

Click here to see a 7-yr note auction bid/cover chart.
11:46 ET 10-Yr: +13/32..3.087%.. USD/JPY: 81.43.. EUR/USD: 1.4088
Carry: Carry trades are weaker today as poor economic data and comments from Euro Group President Jean Claude Juncker have led to some unwind. EURJPY has seen a sharp reversal, touching a high near 116.40 before the economic data and comments from Mr. Juncker knocked the cross to a session low of 114.47. The cross currently trades off 0.8% near 114.60. The 114 area remains important as a breach of that level may lead to a retest of the pre-G7 yen intervention mark of 1.07. AUDJPY (86.15) has been stuck near its 50-day moving average for much of the past three weeks, slipping fractionally below it during today's selling. Further weakening below the 85 level may spell trouble as the 81.50/83.00 area provides the final level of support before the March low of 74.50. Click here to see a daily EURJPY chart.  
11:13 ET 10-Yr: +15/32..3.080%.. USD/JPY: 81.37.. EUR/USD: 1.4085
Permanent Open Market Operations: The Fed purchased $6.03 bln of 2015-2016 maturities through Permanent Open Market Operations as dealers looked to put back $18.80 bln.

There is no POMO tomorrow.  
10:48 ET 10-Yr: +15/32..3.079%.. USD/JPY: 1.4107.. EUR/USD: 81.31
Dollar Index Rejected at 76: The Dollar Index is attempting to recover some of its early losses, holding the 75.35 level for the moment. The dollar was hit overnight as it was unable to push back above the 76 level. Helping the selling pressure was a Financial Times story that pointed out the rise in CDS on the U.S. as concerns mount over the debt ceiling raise and the very real possibility that House Republicans will let the matter go until a default occurs. Economic data did not help matters as the expected upward revision to Q1 did not occur and initial claims remains trapped above the 400K level. Negative comments from the euro are providing the only buying for the greenback.

The euro just took a tumble following comments from EU finance minister head Jean Claude Juncker. Mr. Juncker noted that, under current conditions, the IMF may not release its next tranche to the troubled country. Most believe that Greece will be insolvent by July 18 if it does not receive this portion of the bailout. This would appear to be a ploy by the IMF to push Greece into speeding up sales of its public assets but the market psychology continues to show that investors are not interested in being a part of any game of chicken, choosing to sell now and step to the sidelines until matters are settled. The 1.4120 level will once again be an important support area for the single currency.

The pound remains a surprising destination point for safe-haven players. While the country has seen some growing pains as it implements austerity measures, it appears to be performing well enough to take the fiscal cuts in relative stride. While the rate hike potential has been tabled for now the overall health of the economy appears to be improving and thus so is perception of cable. The pound has recaptured the ground above 1.63 and has had an impressive rally this week.

The yen saw a big spike higher around the time the U.S. data was released. The reason is a little unclear as the possibility of a safe-haven play and the unwind of carry trades both provide reasonable narrative behind the move.

The franc continues to push to all-time highs against the euro but the move brings up big questions about the country. Earlier we saw Switzerland's trade balance post a lower-than-expected surplus. Surprisingly, exports were not the reason behind the shortfall as they rose 11% y/y and 8.5% m/m. That should ease concerns that the rising franc is hurting exports (which fell 3% the prior month). The bigger concern may lie in the Swiss central bank which was buying euro and shorting franc as a way to stem the currencies appreciation. This trade has been a poor one to say the least, perhaps matched only by the central banks decision to sell gold at the early part of the last decade. And it is not immune to the European slide as it was a popular lender to Eastern European countries housing markets, which will be pressured by the rising franc.
10:46 ET 10-Yr: +15/32..3.083%.. USD/JPY: 81.30.. EUR/USD: 1.4101
Rally: Treasuries are near their best levels of the session as comments from Euro Group President Jean Claude Juncker caused further safety buying. Mr. Juncker made comments indicating the IMF may not release the Greek bailout financing tranche next month. The announcement sent most maturities in the futures complex to their best levels since early December. Although the long bond leads the way, it has yet to top its May 18 high. As prices ran higher yields dropped, with most once again hitting their 200-day moving averages. These levels will continue to provide resistance as a breach would prove very significant. The 2-10-yr spread has tightened a bit to 259.2 while the 10-30-yr spread is slightly wider at 115.2. Precious metals continue to trade lower with gold down seven dollars at 1520 and silver off 55 cents at 37.10. The $29 bln 7-yr auction will be held at 1 pm ET. Click here to see a 60 minute 10-yr yield chart. 
08:42 ET 10-Yr: +04/32..3.116%.. USD/JPY: 81.55.. EUR/USD: 1.4179
Data Reaction: Treasuries have rallied to their best levels of the session following the disappointing GDP and claims data. Maturities across the complex moved into positive territory with the long bond now outperforming. After chopping around all morning between 3.14% and 3.16% the 10-yr yield is back down below 3.12%. Continue to monitor the 3.08% area as that is where the 200-day moving average has provided strong support. Despite the recent bout of buying the 2-10-yr spread continues to trade near 259.5. Precious metals are still lower with gold at 1521 and silver near 37.15.
07:25 ET 10-Yr: -02/32..3.142%.. USD/JPY: 81.81.. EUR/USD: 1.4161
Stuck: The dollar index was stuck between 75.50 and 75.60 throughout most of the overnight session and continues to trade in that range early this morning. EURUSD is higher by close to 90 pips near 1.4170 after reports surfaced that China would be a large purchaser of Portuguese "bailout bonds." A move above the 1.43 area may be the precursor of a larger move. GBPUSD trades up 40 pips at 1.6315 as it sees a third consecutive day of gains. Current trade has cable testing its 50-day moving average with 1.6350 providing further overhead resistance. USDJPY is lower for the first time in nine sessions as it was sent back by its 50- and 100- day moving averages. The pair trades down close to 25 pips at 81.80 with support resting near 81.50. Meanwhile, USDCHF has been knocked down by close to 30 pips below its .8700 support. The inability to recapture .8700 support will be troublesome as the all-time low set in early May lies at .8554. AUDUSD is seeing a gain of 50 pips after private capital expenditures topped expectations (3.4% actual v. 2.8% expected). 1.05 support continues to hold, and has recently received help from the 50-day moving average. A move above 1.07 may result in a test of 1.09. USDCAD is unchanged at .9775. Click here to see a 15 minute EURUSD chart.
07:04 ET 10-Yr: -01/32..3.137%.. USD/JPY: 81.78.. EUR/USD: 1.4174
Flat After Lower Overnight: Treasuries are little changed this morning after the overnight session saw modest selling pressure following reports that China would be a large purchaser of Portuguese "bailout bonds." Selling ran the 10-yr yield up to 3.165% during the Asian session before European buyers stepped in and dropped it back down to the flat line (3.14%). Yields across the complex continue to battle their 200-day moving averages, but have yet to cleanly break below them. Despite little change in the complex, the 2-10-yr spread has swung steeper to 259.8. Precious metals are trading lower with gold down seven dollars to 1520 and silver off 62 cents near 37.00. The 7-yr will be in focus today with Treasury set to auction $29 bln 7-yr notes. Today’s data slate includes GDP-Second Estimate and GDP Deflator-Second Estimate, as well as initial and continuing claims (8:30). POMO concludes for the week with the Fed purchasing $5-$7 bln worth of 2015/2016 maturities. Click here to see a daily 10-yr Treasury futures chart.       
Wednesday
15:49 ET 10-Yr: -03/32..3.127%.. USD/JPY: 81.95.. EUR/USD: 1.4085
Mostly Flat Close: Treasuries finished the day little changed, moving to their worst levels of the session following this morning’s data, and then seeing gains after the strong 5-yr note auction. Recent underperformance of the long bond continued with the on-the-run 30-yr shedding 0.5%. Yields continue to hammer away at support from their 200-day moving averages with a sharp move likely to occur in one direction or the other. The inability of yields to see a strong bounce off their 200-day moving averages has some Treasury bears concerned. The yield curve finished the day flatter in the belly with the 2-10-yr spread easing to 258.5 while the 10-30-yr spread steepened to 115.3. Precious metals closed higher with gold up a couple dollars to 1526 and silver higher by 1.77 at 37.90. Thursday’s data slate includes GDP-Second Estimate and GDP Deflator-Second Estimate, as well as initial and continuing claims (8:30). Attention turns to the 7-yr as Treasury will auction $27 bln of 7-yr notes. POMO concludes for the week with the Fed purchasing $5-$7 bln worth of 2015/2016 maturities. Click here to see a daily 10-yr yield chart.
14:51 ET 10-Yr: -03/32..3.129%.. USD/JPY: 81.99.. EUR/USD: 1.4080
Little Changed: The dollar index is little changed near 75.90 after spending most of the session in positive territory. Disappointing economic data knocked the greenback off its best levels of the day earlier this morning, and it has since seen a sideways chop near the flat line. EURUSD trades off 20 pips near 1.4080 in what has amounted to a pretty quiet session for the pair. As always attention will be paid to any further developments regarding the sovereign debt worries of the euro zone peripheries. GBPUSD is up 95 pips at 1.6270 as it has remained near this level throughout the entire U.S. session. Action remains stuck between the pair's 50- and 100- day moving averages as it has for the past two weeks. USDJPY trades flat at 82 during what has amounted to an uneventful day for the pair. USDJPY saw little reaction to Japan's trade deficit reading that beat expectations. USDCHF trades just off its lowest levels of the session at .8725. Eyes will be fixated on the .8700 level with a breakdown possibly leading to a retest of the all-time lows set in early May. Swiss trade balance and employment level will be released overnight. AUDUSD hovers on its 50-day moving average near 1.0515 in an attempt to hold 1.05 support. Further weakness may result in a move towards 1.02 support. Australian private capital expenditures are due out tonight. Click here to see a daily EURUSD chart.
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