-The rally in short-dated Italian and Spanish bonds continued yesterday. The Spanish 2-year yield dropped 44bp to 3.37% and Italian 2-years dropped 7bp to 3.0%. The rally in peripheral debt gained momentum as it became clear that Merkel and her government back the plan announced by ECB President Draghi last week. According to Bloomberg German government spokesman Streiter said that Germany has “no doubt” that the ECB is acting within its mandate.

-EUR/USD trades just below1.24 this morning. In our view the downside tail risks to EUR/USD have fallen significantly the past couple of days and with still close to record numbers of speculative short euro positions in place according to the so-called IMM positions we continue to see upside for the cross. From a technical point of view strong resistance for EUR/USD is seen at 1.2444 – the August 6 high .

-After some initial sell-off in both NOK and SEK yesterday, both EUR/NOK and EUR/SEK have once again edged lower overnight. In our view it reflects that both currencies are supported by the positive risk sentiment and that the initial fears of huge safe-haven unwinds in both currencies were unfounded. We continue to see EUR/NOK and EUR/SEK trading close to current levels the next of couple of days despite the euro zone optimism dampens demand for safe-haven currencies. If we look slightly longer ahead both crosses could easily move notably lower as we expect both the Riksbank and Norges Bank to stay on hold for at least until December. Note that the Swedish newspaper today run a front-page story on the strong SEK. But contrary to what one would expect focus is on the positive aspects for import companies of a strong SEK and not the traditional story that this will destroy the export sector.

-As expected RBA kept rates unchanged at 3.5% this morning. We note that RBA in the monetary policy statement says that China’s growth has moderated to a more sustainable pace, but does not appear to be slowing further. It bodes well for AUD and further gains in AUD/USD is expected. From a technical point of view the outlook is also constructive for the cross. Strong resistance is seen at 1.0637.