Just add it to the list

‘Europe’s crisis is now poised at the moment that divides recovery and renewal from decline and death’

Blimey

You need to be a hardcore technical analyst to care, but…

The June 1 low  was 1.2288 and the euro managed to avoid a daily and weekly close below that level with a bid in the final moments of trading, bringing it up to 1.2291.

I caution against counting pips that closely but you could make the argument that it points to a small early-week bounce, perhaps to 1.2400.

Gold is included in a list of proposed assets that will be treated as the highest form of collateral in over-the-counter derivatives trades in a Basel group proposal released Friday.

Under today's proposal, regulators would allow companies to use a range of instruments as collateral, including cash, government debt, "high quality corporate and covered bonds," gold and equities listed on "major" stock exchanges.

The Basel proposal will force banks to hold collateral in the $650 billion over-the-counter derivatives market, which will boost demand for safe haven assets.

The margin requirements will create huge demand, upwards of several trillion dollars according to some estimates, for high quality assets to serve as collateral.

The inclusion is also a sign than Basel officials may upgrade gold to a Tier 1 asset from its current Tier 3 status in a decision officials are pondering.

Placing gold alongside the most-secure assets makes sense and will boost its allure  as banks diversify reserve capital to avoid the sovereign bond bubble.

• Non-farm payrolls +80K vs +90K exp, revisions negligible
• Unemployment rate 8.2%, as expected
• EUR/USD falls to lowest since 2010
• Canadian employment +7.3K vs +5K exp
• WSJ: Some Fed members considering MBS purchases
• Samaras says Greece has missed deficit targets
• ECB’s Coeure: rate cut was due to deflation risk
• Coeure: Can buy bonds for mon pol reasons
• Coeure: QE not on the tableright now
• SNB reserves rise 60B francs in May
• EU says no money for Greece until programs get on track
• EU: no common bank supervision before mid-2013
• JPM and GS close European money market funds due to 0% deposit rates
• Canada Ivey PMI 49.0 vs 55.8 exp
• Italian 10s +5 bps to 6.02%, Spanish 10s +18 bps to 6.95%
• Schatz yields back below zero, 10-year yields -6 bps to 1.33%
• S&P 500 down 0.9% to 1355
• On the week S&P 500 down 0.55%
• Gold -$21 to 1583
• WTI -$3 to $84.22
• JPY leads, EUR lags on the day and the week

The euro took losses on all sides as risk aversion sparked by soft non-farm payrolls data translated into risk aversion.

EUR/USD tumbled 50 pips immediately after the report but found support at 1.2330. That support slowly eroded until stops began to blow out below 1.23 and below the May low of 1.2286. That level also represents the low since 2010 and it gave out as Europe prepared to close for the weekend. The losses continued all the way to 1.2260 before at late rebound to 1.2290.

USD/JPY took the NFP report as a sign that QE3 is growing more likely and the pair fell to 79.49 from 79.90. Bids at 79.50/60 buffered the drop and even the slight tick below wasn’t enough to set off stops.

The Canadian employment report was stronger than expected with a large gain in full-time employment but USD/CAD took its cues from NFP and USD/CAD climbed more than a half-cent to 1.0280 before settling back to 1.0190.

Could the Fed be going back to the future?

QE1 was made up of purchases mostly on Mortgage-Backed securities. The Journal says some Fed officials would like to do more. Makes sense since they already own much of the available stock of medium-term Treasuries…

The dollar headed slightly lower on the talk late in the session.

US DATA: June STRIPS -$3b, but -$2.6b ex maturities. The 3% of May’42
had $169m stripping. See MNI Main wire.

• Negative deposit rate theoretically possible but not needed now

Not on the table right now… Talk about leaving the door wide open for the future.

Bundesbankers beware!

Comments came from an interview with Bloomberg.

Merkel approval rating 66% in latest poll, FT reports.

A fresh 1.2260 low in the last 5 minutes.

AIX-EN-PROVENCE (MNI) – The European Central Bank’s bond buying
program remains “theoretically open” but that role is now more properly
played by the European Stability Mechanism, ECB Executive Board member
Benoit Coeure said Friday.

Speaking at a conference here, Coeure said the ESM was created to
help stabilize the Eurozone and it would not be appropriate for the ECB
to do what should now be done by governments.

Coeure said ECB could buy sovereign debt “only in the context of
monetary policy.” He added that central bank lending to the ESM for the
specific purpose of buying sovereign bonds would violate the rule
against monetary financing.

He said some types of ESM borrowing from the ECB might be possible,
like short-term bridge financing, but he suggested that nothing specific
was under consideration.

On the recent rise in peripheral market bond yields, Coeure said an
initial burst of market enthusiasm after a summit agreement was often
followed by skepticism that summit decisions would be implemented.

“The biggest risk to the euro is not markets,” Coeure said. “The
biggest risk to the euro is a lack of political will” to follow through
on the decisions taken at the summit.

He repeated that it was “urgent” to put a single banking supervisor
in place in the EU because that would allow banks to be directly
recapitalized by the ESM and help break the link between weak banks and
weak governments.

–Paris newsroom, +33142715540; jduffy@marketnews.com

[TOPICS: M$$EC$,M$$CR$,M$X$$$,MGX$$$]

–UK’s Serious Fraud Office Launches Libor Probe
–BOE’s Turner Testifies Monday

By Denny Gulino

WASHINGTON (MNI) – As several large international banks, including
a few in the United States, wait for the Libor axe to fall on them, one
question raised is how well bank stress tests can model unforeseen
events. But there are many other questions as well.

Barclays, which claims it fully cooperated with authorities, is
nevertheless paying them nearly a half billion dollars in penalties.
Some other banks, not all of whom have been so cooperative, are waiting
to hear what their penalties will be.

But regulatory penalties are only part of the potential damage, and
perhaps not the most significant part, as the Barclays episode is
demonstrating.

First, there are non-monetary damages, which may in the long run be
the most important. The announced top-level Barclays departures, though
not necessarily as immediate as they first seemed, will deprive that
bank of its top three executives, a decapitation that calls into
question the institution’s continued commitment to its enlarging
footprint in investment banking and several other operational
fundamentals.

The departing executives will not be able to escape the many
further investigations under way nor will Barclays escape their close
association with the bank.

Second, the sheer number of investigations and their distractions
will burden Barclays and any other bank target, perhaps for years.
Earlier Friday the UK’s Serious Fraud Office announced it has agreed to
“formally accept the Libor matter for investigation.” That places the
individual authors of many incriminating emails at Barclays in legal
jeopardy as well as the recipients of the emails at other banks.

If criminal prosecutions follow, for Barclays or any other bank,
their predicament suddenly escalates into an existential threat, since
convictions make bank operations difficult in any country that delivers
them. By definition, the international banks in the crosshairs operate
in many countries.

Barclays dodged the first bullet, getting a two-year exemption from
an institutional indictment from the U.S. CFTC and the Department of
Justice, consideration for the bank’s cooperation in their two-year
probe. There are many more bullets to dodge and some other banks are
doubtless strategizing already how to duck them as well when their time
comes.

Germany’s markets regulator BaFin is deep into its own Libor
manipulation probe as is Canada’s Competition Bureau. With the new
disclosures from the CFTC, the U.S. Department of Justice and UK’s
Financial Services Authority that accompanied the levy of their huge
penalties, investigators worldwide now likely have far more concrete
evidence than before.

Then there is a thicket of civil lawsuits already under way in
several countries. That evidence being gathered by banking regulators,
market regulators and state prosecutors is eagerly awaited by dozens of
law firms, some of which have been pursuing Libor manipulation awards
since 2009.

In the U.S. alone two dozen Libor lawsuits, some invoking RICO
conspiracy charges, have been consolidated in Manhattan’s U.S. District
Court for the Southern District. They have been filed by firms,
municipalities and individual investors claiming losses on securities
with yields calibrated to Libor.

With so much new evidence in the pipeline, many more civil lawsuits
can be expected, particularly in U.S. courts where punitive damages can
be claimed in addition to compensation, not the case in many other
venues.

Bank of England Deputy Governor Paul Tucker testifies Monday before
the UK’s Treasury Select Committee to address Barclays disclosure that
his 2008 telephone call was interpreted by bank managers as the go-ahead
to submit distorted rate information to the Libor process. Barclays’
Marcus Agius testifies Tuesday, not only as chairman of the bank, but as
chairman — up until Monday — of the British Bankers Association, the
banking trade group that supervises Libor.

Standard and Poor’s joined Moody’s earlier in the week when they
changed their outlook for Barclays to negative, to remain until the
company demonstrates its operating stability in the quarters ahead.

Meanwhile, the Libor scandal has placed a new focus on the adequacy
of regulatory stress testing of the largest banks, the latest round of
which was completed in the U.S. in March. With a focus on economic and
financial stress, using hypothetical scenarios limited to adverse
circumstances in the economy and in markets, the exercise completely
misses other kinds of stress, including the loss of top management,
severe reputational damage, massive legal expenses and enormous fines.

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

[TOPICS: MK$$$$,M$U$$$,MAUDS$,MGB$$$,M$B$$$,M$$BE$]

Andy Murray is the first Brit to make Winbledon final since the 1930s. He will play Swiss star Roger Federer on Sunday. GBP/CHF is a virtual a mirror of EUR/GBP but let’s take a look.

The weekly chart shows GBP/CHF breaking to the highest since 2011 today. So long as the EUR/CHF peg holds, and I believe it will, the pair doesn’t face any significant resistance until 1.58, which is the convergence of the 200-day moving average and the 2011 high.

Murray will surely be trounced by Roger Federer on Sunday but it’s still a great win for the UK ahead of the Olympics. Now, if only Jenson  Button could win the British Grand Prix on Sunday.

Or so the Obama White House has told us 30 times over the last three years.

if three’s a trend, thirty is a tsunami.

EUR/USD bounced slightly from fresh 2-year lows a short while ago, but the bounce was capped at 1.2288, the old support level, now turned resistance.

A close below 1.2288 opens the ay for a move down to 1.2150 support next week.

FRANKFURT (MNI) – European central bankers backed proposals by the
European Commission for a permanent EU-level process to coordinate
monitoring of the shadow banking sector, according to a joint release of
the Eurosystem Friday.

The Eurosystem, responding to a shadow banking Green Paper released
by the EU Commission in March, said it was working to improve its own
knowledge specifically of the securities financing and repo market, and
proposed creating a central database on repos transactions that is fed
directly by market infrastructures and custodian banks.

“The Eurosystem has a keen interest in obtaining more information
on repo market activity, both for monetary policy implementation and
financial stability considerations,” the paper said.

To that end, “the Eurosystem considers that a central database
collecting data directly from (market) infrastructures and custodian
banks … would have several advantages.”

“A central database fed by these infrastructures and custodian
banks would be the place for the much needed central view on repo market
and its participants, both banks and non-banks,” the paper said.

The Eurosystem said the collection and exchange of information on
shadow banking should be the role both of central banks and supervisory
authorities, and it suggested monitoring be led by the European Systemic
Risk Board as a result.

“Considering the systemic risk implications…the ESRB seems to be
a natural body where regular discussions of shadow banking developments
concerning the EU financial system should take place, on the basis of
regular data collection,” the Eurosystem paper said.

“The Eurosystem stands ready to provide analytical and statistical
support as regards the monitoring of shadow banking in the EU.”

– Frankfurt bureau: +49 69 720 142; email: ccermak@marketnews.com

[TOPICS: M$X$$$,M$$EC$,MGX$$$]

Risk assets are universally weaker today but Dr. Copper is lagging, down 2.25% to 3.41/lb.

The Canadian dollar has a strong correlation to copper because they’re both proxies for global growth. Looking at a copper vs USD/CAD (inverted), we see that the commodity tends to lead the currency:

Another chart we have been following plots AUD against oil, copper and the S&P 500 since the slump at the beginning of May.

The Australian dollar has outperformed even the resilient US stock market. Oil, meanwhile, has disconnected… or is it best capturing the slowdown in global growth? If AUD were to catch up to oil or copper, it would have to fall to parity or lower.

Since the SNB has pegged the EURCHF and traders have kept the price pinned against that level, the USDCHF is more or less the inverse of the EURUSD.  The same is true from a technical perspective.  

On the daily chart the price is currently testing/moving above the high for the year (and above the high from June 1). That level comes in at 0.9770.  Staying and closing above this level would be bullish for the pair and give the longs a good feeling going into the weekend.  

Looking at the hourly chart, the price (like the EURUSD), bottomed against the 200 hour MA yesterday before surging higher. Today, after consolidating in a narrow trading range, the pair sugred higher post the US employment data.   That move has pushed the pair above the topside trend line at the 0.9772 level currently (see chart below).  This increases the importance of the 0.9770 area as a key level for the pair (intermediate traders should be encouraged by closing above).  Stay above = Bullish. Move below and the longs may look to lighten up a bit.   

Fianlly, the 5 minute chart outlines the trend moves in today’s trading. After consolidating for most of the Asian and London morning session, the price has trended post the US employment report. The last leg higher has taken the price above the 0.9770 June 1 high.   The 38.2%-50% of that leg higher (i.e., the “Correction Zone”) comes in at 0.9768-73).  Like the hourly and the daily, this area around the 0.9770 is key for the pair.   Move below and the last buyers at the high may look to cover before the weekend.   Stay above and longs feel no pain, shorts feel all the pain.

Overall, the pair is doing alright. 

PS.  Versus the EURUSD, the 1.2291 area is the equivalent level of the 0.9768-70 area in the USDCHF. If the EURUSD moves above the 1.2291 the USDCHF should be moving below the 0.9768 -70 area. 

Deposit rates at 0% forced a similar move from JPMorgan earlier.