• Japanese PM Noda: Yen gains do not reflect fundamentals, to explain to G20
• Spanish deputy PM Saenz: We can’t afford these high interest rates (10 year debt closes at 6.92%)
• Empire State Manufacturing index falls to +2.3 in June from +17.1 in June
• Italy to sell property, streamline ministry staffs
• Canada factory orders fall 3.2% in April
• US industrial production falls 0.1% in May, weaker than expected
• University of Michigan consumer sentiment index falls to 74.1 versus expectations of 77.0, Lowest since December ’11
• Bini-Smaghi- No mechanism for country to leave euro zone
• IMF: Spain likely to miss 2012 budget target
• Bloomberg: ECB may cut rates 
• Basel III banking requirements may be watered down
• Market trimmed euro short position by 9%: CFTC
• US 10-year note yield falls 6 bp to 1.58%
• S&P 500 rises 1% to 1342

The market continued to trim safe-haven plays in the belief that Greek conservatives will be able to form a pro-bailout coalition. EUR/USD rose as high as 1.2654 and closes near its highs despite a Bloomberg report indicating that the majority of ECB policy makers are prepared to lower rates further.

EUR/USD, the 38.2% retracement of the drop from 1.3284 to 1.2288 comes in at 1.2672, which was the high last Monday after the Spanish bailout. 1.2785 is the 50% retracement of that same move and a target on the upside if New Democracy wins the election Sunday.

GBP/USD rallied strongly today, triggering stops above 1.5600 and rising as far as 1.5696 late in the day in thin trade.

Commodity currencies rose on growing expectations that the US, UK and ECB will all add liquidity of one sort or another in the coming weeks. AUD ends at 1.0088 and USD/CAD at 1.0220.

And that is at the close of business on Tuesday. It has likely been trimmed a good bit more than that by now…

Apparently choked on long dollar position…

Reminds me of this…

The GBPUSD  moved above the 1.5661/62 level where the 38.2% of the move down and the top trend line are found.  The price has trended higher today – moving above the key 1.5600 level and then this 1.5661 level.   Until the price can move below the 1.5661 levels, the bias is bullish.  Where is the next key level if the price cannot move and stay below the key 1.5661 level?  The 200 day MA at the 1.5750 (green line in the chart above).

• Global war on deflation underway

Comments made on CNBC…

EUR/USD doesn’t care, trading near session highs.

Offers are scattered up to 1.2675 with stops just above that level.

Given the ongoing debt crisis in Europe, regulators may ease rules on bank capital requirements, the Journal reports.

This could take a bit of the pressure off banks in places like  Spain, Italy and France .

Probably a plus for the euro.

According to a survey of economists….

• Choice is between euro or drachma
• The election is about a change in economic policy
• If we clash with European partners we will have to leave euro

Pretty euro-friendly rhetoric, as expected.

The London clearinghouse lowered margins on French debt shorter than nine months and raised it on bonds with 15-30 maturities.

Margin hikes tend to make the market nervous and are usually euro bearish, but today is an unusual day.

France, Germany the UK and Italy agreed on goals for the G20 meeting next week the French president’s office said, after the 4 leaders held a video conference.

Growth, jobs and financial regulation are the areas of common interest.

How can the caterers stay in business if they meet by video conference?

Gold, oil and commodity currencies should be soaring. So far, the reaction to the ECB talk is muted on the part of AUD, CAD and gold and counter-intuitive on the part of euro.

I guess we’re trading off of position adjustments and not fresh speculation on a thin Friday afternoon…

Gold sprinted around the track earlier in the NY session, racing to the upside, then racing to the downside.

As if that was not enough, it then did a “warm down” lap which was slower and a bit less than the first race but it did it’s lap too.   Trading in it is certainly quite volatile (and unusual). 

Looking at the daily chart, the 38.2% of  the move down from the end of Feb comes in at 1627.22. There is also trend line resistance at the 1630  This is  a technical level which will be an influence for the pair.   A move and close above, and the bulls will start to look toward that 100 day MA (blue line) and 50% at the 1658.23 as the next key target. 

By Yali N’Diaye

WASHINGTON (MNI) – The latest economic forecasts from rating
agencies Standard & Poor’s and Fitch Friday show the latter remains more
optimistic about U.S. economic growth than its larger rival, especially
for next year.

Fitch released for the first time its GDP projection for 2014,
expecting the U.S. economy to grow at a pace of 3.0%, slightly more than
the 2.9% expected by Standard & Poor’s.

The gap between the two agencies’ GDP projections is slightly wider
for this year: 2.2% for Fitch and 2.0% for S&P.

But the largest divergence is for 2013, when the U.S. GDP growth
rate is expected to reach 2.1% by S&P and 2.6% by Fitch’s estimate.

In its Global Economic Outlook, Fitch revised down it world GDP
forecast by 0.1 point for both 2012 and 2013, led by downward revisions
in the euro zone but even more so — for 2012 — by emerging markets.

The latter are losing steam, the rating agency said, expecting
BRICs — Brazil, Russia, India and China — to grow at a pace of 6.0%
this year and 6.6%, revised down by 0.3 point, and 6.6% in 2013, which
was unrevised.

Even as emerging markets growth is still expected to outpace that
of major advanced economies by a significant margin over the next two
years, “The vulnerabilities of future BRICs growth to domestic and
global shocks have increased,” Fitch said.

In the eurozone, GDP is expected to decline this year by 0.4%
before recovering 0.9% in 2013, both revised down 0.2 point.

“Financial tension has resurfaced in the eurozone and the negative
impact on GDP growth will be significant,” Fitch said.

Fitch’s global growth forecast is 2.2% for 2012 and 2.8% in 2013,
compared with 2.3% and 2.9% in the previous Global Economic Outlook.

In the U.S., noting the recent slowdown in the job market signaling
weaker business sentiment, Fitch expects it “to be offset by continued
resilience in consumer spending.”

For 2012 and 2013, Fitch has kept its U.S. growth forecast
unchanged at 2.2% and 2.6% respectively, and projects and average growth
of 3.0% in 2014.

Turning to monetary policy in major advanced economies, Fitch said
record low interest rates are likely to stay in place through mid-2013,
warning that “The impact of further monetary stimulus would be doubtful
given the already minimal yields of safe haven assets at longer
maturity.”

Commenting on the June 19-20 Federal Reserve Federal open Market
Committee meeting, S&P’s Deputy Chief Economist Beth Ann Bovino said in
her June Monthly Forecast she does not “expect a balance sheet move.”

“Fed officials have indicated that they would need to see worsening
labor market conditions, a sharp slowdown in growth, greater risks to
the economic outlook, and a reemergence of deflationary risks before
they would act,” she said.

Still, “A dovish statement and a downward spin on Fed forecasts are
very likely, which takes it one step closer towards another
unconventional policy move,” the report continued.

It added that “with the momentum in the U.S. economy cooling and if
market financing dries up after the Greek vote, the Fed may be forced to
open its toolbox sooner than it thought.”

Standard & Poor’s expects the U.S. GDP to grow at a pace of 2.0%
this year, 2.1% in 2013, 2.9% in 2014 and 3.4% in 2015.

It does not expect the unemployment rate to fall below 8% before
2014, with the improvement accelerating the following year to 7.1%.

Standard & Poor’s remains the most pessimistic of the Big Three, as
Moody’s sees U.S. real GDP rate rising to 2.6% next year from 2.3% this
year, slightly more than Fitch’s 2.2% forecast. However, Moody’s
forecasts included in its May 15 Credit Opinion refer to fiscal years.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: MR$$$$,M$U$$$,MAUDS$]

The ECB has overcome a key concern about cutting the refi rate below 1% and cutting the deposit rate to zero from 0.25%, Bloomberg reports. Sounds like the ECB wants to push deposits out of the ECB and back into the banking system, where they will be used in the real economy.

EUR/USD is rallying, overcoming 1.2650.

Usually, lower rates undermine a currency, but not EUR/USD, not today.

1.2672 is crucial resistance ahead of the weekend. Stops are eyed above that level in good size.

but smack talking about the French economy will not hurt the Franco-German bilateral relationship. a presidential source says.

The Reuters headline reads: FRANCE DOES NOT SEE MERKEL’S COMMENTS ON FRENCH ECONOMY AFFECTING BILATERAL RELATIONS – PRESIDENTIAL SOURCE

Merkel earlier took France to task, after Hollande met with Merkel’s opposition.

Reuters reports that he says:

• Exit would be devastating
• Would spread to other weaker Euro Area members
• If Greece voted for pro bailout deal, terms may be eased to help

–Adds Details On Bank Aid Plan After The Fifth Paragraph

PARIS (MNI) – Spain is likely to miss its 5.3% deficit target for
2012 and “significantly overshoot” targets in the next several years,
the International Monetary Fund warned on Friday.

In its so-called Article IV review of Spain, the IMF said weak
economic growth is depressing government revenues and offsetting
Madrid’s efforts to hit its targets through spending cuts and structural
reforms.

“Despite the considerable effort, the very ambitious 5.3 percent of
GDP deficit target for 2012 will likely be missed,” the IMF report said.
“Given the weak growth outlook, however, slippage should not be made up
in a compressed timeframe,” the report cautioned.

The IMF also chided the Spanish government for basing its deficit
reduction effort in the 2013 to 2015 period on spending reductions that
have yet to be identified.

“Given the lack of detailed measures after 2012, staff projects the
deficit to significantly overshoot targets and to fall only gradually
over the medium term,” the IMF report said.

But the IMF also noted that the Spanish economy has upside
potential given the recent successful implementation of labor market
reforms and the bank bailout aid offered by Spain’s European partners.

“This backstop will ease the financing of the clean-up,
restructuring, and recapitalization of the weak segments of Spain’s
banking sector once and for all,” the IMF report said. “Doing this
thoroughly and accompanied by a comprehensive package of reforms in
other areas should help restore confidence.”

Even if the bailout reaches the E100 billion ceiling level, “this
would remain manageable from a debt sustainability perspective, provided
the envisaged fiscal adjustment is undertaken,” the IMF said.

To regain confidence and credibility, Spain needs to adhere to a
“smoother” deficit reduction path over the medium term and to focus on
policies that will restore its competitiveness, the IMF said.

In addition to the bank aid package, the Eurozone can most help
Spain by making a “convincing and concerted move toward a complete and
robust EMU,” the IMF said. Such as move is necessary to cap contagion
fears and stop outflows from Spanish banks, the fund report said.

“A clear commitment in this direction, in particular on area-wide
deposit insurance and a bank resolution framework with common backstops,
is essential to chart a credible path ahead. ”

Paris newsroom, +33142715540, jduffy@marketnews.com

[TOPICS: M$$CR$,M$X$$$,M$S$$$,MGX$$$,MT$$$$]

• China must allow exchange rates to reflect market forces

Typical pre-G20 talking points…

• Extent of bank write downs in Europe the question
• Debt to GDP ratio in Europe needs to be lowered
• More difficult to step into markets

Bloomberg interview with Sean Jones…

The AUDUSD has been supported of late and today tested the underside of the broken trend line at the 1.0077 level. The high has so far come in at the 1.00674.   The level provide traders the opportunity to take some profit at a key level before the weekend.   Support target comes in at the 1.0039 level (100 bar MA on the 5 min chart below and 38.2% of the days range).   Like the GBPUSD, which is near key resistance, a break above should not be ignored.