Euro fears are clearly returning to the markets and EUR/USD has this morning dropped below 1.21 for the first time in more than two years. In Spain, the concerns about the state of regional government finances are mounting with the Spanish regions facing about EUR15bn in debt redemptions in H2. Catalonia and Valencia are the hardest hit regions. On Friday, the regional government in Valencia asked for a bailout from the Spanish government. That issue will undoubtedly remain on the agenda this week. This morning Spanish 10-year yields have traded above 7.50 % according to Bloomberg prices.
The increase in risk aversion also continues to push US and German government bond yields lower and both US and German 10-year government bond yields are now at historically low levels and have taken out the lows of June. Also Scandi currencies continues to be well supported with both EUR/NOK and EUR/SEK trading close to record-lows this morning. We fundamentally believe that the Scandies offer strong fundamentals, but note that our G10 FX Scorecard recommend to be short NOK and SEK this week.
Tomorrow the so-called Troika will arrive in Athens for talks with the new Greek government. This coincides with quite negative comments about the Greek situation from German Vice Chancellor and economic minister Philipp Roesler, who, over the weekend, said he was ‘sceptical’ about the possibility of a rescue of Greece and once again stressed that there can be no more payments to Greece if the new government does not fulfil the strict conditions for further rescue funds.
IMM positioning data for the week ending July 17 showed a modest change in positioning: non-commercial investors remain very short EUR/USD, slightly long the commodity currencies and slightly long the yen. For more see the IMM table on page 2 and the IMM positioning update that will be out later today.