Price action has been mostly mixed on Thursday though trading in the pre-North American hours has resulted in a modest push upwards by high beta currencies and risk-correlated assets, led by declines by the Japanese Yen and the US Dollar. The optimism is mostly European-centric, with the Euro leading, followed closely by the British Pound and the Swiss Franc, despite the fact that equity markets remain skewed lower and Italian and Spanish bond yields have inched higher the past few hours.
The main event on today’s docket is the European Central Bank Rate Decision, although no new efforts are expected to be set forth. Instead, we are looking to President Mario Draghi’s press conference, which could offer new insight into the conditions necessary to take part of the Outright Monetary Transactions (OMTs), the bond-buying program designed to work hand-in-hand with the European Stability Mechanism (ESM) to stem the crisis.
Any commentary suggesting that the ECB remains prepared to act or rhetoric that suggests the 2013 budget set forth by Spain is sufficient for the ECB will be largely supportive of the Euro and high beta currencies. In fact, given the stall by many of the major pairs – AUDUSD, EURUSD, GBPUSD – at critical support, optimism spurred by the ECB could provoke a solid bounce ahead of tomorrow’s crucial US Nonfarm Payrolls report for September.
Taking a look at credit, peripheral European bond yields are mixed but higher, despite the Euro’s strength. The Italian 2-year note yield has increased to 2.197% (+4.7-bps) while the Spanish 2-year note yield has increased to 3.161% (+4.6-bps). Likewise, the Italian 10-year note yield has decreased to 5.067% (-1.8-bps) while the Spanish 10-year note yield has increased to 5.786% (+3.0-bps); higher yields imply lower prices.