• Talk of large Austrian order to buy euros
• Greece misses 210 of 300 Troika targets
• U Mich July consumer sentiment 72.0 vs 73.4 exp
• US June PPI +0.7% y/y vs +0.2% exp
• NY consulting shop says ECB could go to negative deposit rates in September
• Spain to hike VAT on Sept. 1
• Spain approves liquidity mechanism for regions
• Greece could default on maturing bonds held by the ECB
• Fed's Lockhart: Policy "untenable" if economy remains on current track
• Fed’s Lacker: I see no need for additional stimulus
• EUR shorts 165K vs 146K
• S&P 500 +1.65% to 1357
• GBP leads, USD lags

The euro touched a fresh two-year low of 1.2161 early in US trading but quickly reversed ahead of bids at 1.2150 and 1.2258 before settling around 1.2244. Talk of a large Austrian order, options activity and an old-fashioned short squeeze made the rounds but there was no definitive answer for what sparked the turnaround.

Cable was even more pronounced and continued to 1.5577 from 1.5450 at the outset of US trading.

Broad USD selling even spread to USD/JPY as the rout got underway, knocking the pair down to 79.07 before the pair fell back into a coma around 79.20.

The gold rebound continued but fell just short of $1600.

AUD/USD erased nearly all of the post-employment report declines, slowing making its way to 1.0230 after blowing through small stops at 1.0200.

By Brai Odion-Esene

JACKSON, Mississippi (MNI) – Atlanta Federal Reserve Bank President
Dennis Lockhart Friday said while he remains on the fence regarding the
need for additional monetary stimulus to boost job growth, his
“receptivity” towards the idea has increased “a bit.”

His comments, made to reporters following a speech to the
Mississippi Economic Council in Jackson, Mississippi, underlines the
conundrum the central bank faces as it contemplates whether or not to
once again venture into unchartered territory to aid the weak economy.

Lockhart also declared himself “very comfortable” with the
expectation of the Federal Open Market Committee, the Fed’s steering
group, that interest rates will likely need to remain at exceptionally
low levels until late 2014.

If the Atlanta Fed’s forecasts are “substantially adjusted because
we just don’t see the track of the economy, that we are now expecting,
coming about, then I will certainly consider further action,” he said.

Lockhart is a voter on the FOMC this year.

Lockhart said while up to four participants at the June FOMC
meeting were in favor of more stimulus to help the economy and job
growth, the remainder are split between some that are against the idea
and some that are on the fence.

“I would call myself a little bit more on the fence at this point,”
he said.

Lockhart said he will wait for more economic data to provide
clarity on “are we dealing with something that is transitory or
persistent.”

So what would it take for him to support additional easing? “It
would take, basically, some more bad news and a more convincing picture
that an economy that we thought was growing on a gradual curve is
slowing down,” he said.

In addition, it would require the unemployment rate — which is
still coming down — to flatten out and become “more stagnant,” Lockhart
added.

He reiterated that if that picture becomes “very convincing,” there
may be a shift in his position on the need for additional stimulus this
year.

Still, additional quantitative easing remains an option on the
table and will not be dismissed as one, Lockhart said.

“I have been watching the economic data and listening to what
people tell us about what’s going on in the economy with increasing
concern, and in that sense … my receptivity has increased a bit,” he
said.

“If I felt the economy required it — speaking for myself — I’d
have no reticence in taking action,” Lockhart added.

While it is important to consider the costs of a third round of
quantitative easing, Lockhart reiterated that any risks over the longer
term — particularly with regard to inflation pressures and normalizing
the balance sheet — “are manageable.”

“So I don’t think, at the moment, that concern about that so
outweighs the modest benefits as to take that option off the table,” he
said.

Lockhart told reporters the FOMC would have to consider a range of
possible approaches, if and when further quantitative easing gets
serious consideration, “and in my mind that could very well include
mortgage-backed securities.”

It is important — given the way the economy is performing and the
marking down of their outlooks by many on the FOMC — “to keep an open
mind and be flexible about what incremental policy might look like,” he
said.

Lockhart said, in theoretical terms, the obvious advantage of MBS
purchases, would be to put pressure on mortgage rates and make
first-time home purchases more affordable.

“That would have a positive effect on the housing industry in
general,” he continued, “including the construction aspect.”

Lockhart also stressed that the Fed’s decision to extend ‘Operation
Twist’ by $267 billion through the end of the year does not preclude
additional action by monetary policymakers this year to support the
economy.

“I think you have to view policy as a cumulative and composite
stance of elements that represent policy,” he said. “We could add
another dimension, and, in my view, don’t need to wait for the expiry of
something else that is part of the policy mix.”

Asked by MNI if he has adjusted his forecast for when the first
interest rate increase by the FOMC will happen, Lockhart noted he had
pulled forward his expectation of the first rate hike “to some degree”
at the group’s April meeting.

Now, however, “With the recent slowing of the economy, the recent
data that has come in, I am very comfortable with late-2014,” he said.

Lockhart said the FOMC’s view of the world changed “pretty rapidly”
at its June meeting and that the broad view of the committee now is that
the economy is in a “slowing period.”

He acknowledged that monetary policy is a blunt instrument that can
only have an impact on a macro level as opposed to targeting particular
sectors of the economy. Still, “nurturing the economy back to full
potential is in all our interests,” Lockhart said.

As for Europe, Lockhart said the crisis there is “front and
center,” with Fed officials monitoring events very closely.

A major risk, he said, is the potential for an unexpected event on
the continents to create a major contagion that spreads throughout the
global financial system and affect liquidity, he said.

Another risk of the Europe crisis is its negative impact on
confidence, Lockhart added, noting that concern about the eurozone is
part of the overall mix that businesses cite as fueling their
hesitancy.

The minutes of the June FOMC meeting published Wednesday showed
several members said it would be desirable to explore the possibility of
“developing new tools to promote more accommodative financial conditions
and thereby support a stronger economic recovery.”

Lockhart said new ideas are worth exploring, such as using the
discount window for supporting particular channels of credit or kinds of
loans.

“That’s something that could be studied,” he said.

** MNI **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$X$$$,M$$CR$]

That’s above the technical hurdle I pointed out earlier, a bullish sign.

On the week, stocks eked out a 0.15% gain.

• Does not see  need for additional stimulus at this time
• Expectations of what central banks can accomplish have become overinflated (a bubble, perhaps?)

He hits the nail on the head with that last line. Fed hasn’t been able to revive growth yet, why would another dose of monetary lighter fluid work now?

• EUR shorts 165K vs 146K
• JPY longs 9K vs +4K
• GBP shorts 8K vs 5K
• CAD longs 4K vs 9K
• AUD longs 19K vs 9K
• NZD  longs 5.5K vs 4K

Not the dramatic move in euro shorts I would have anticipated, which is a good sign if you’re short EUR. Otherwise it’s a ho-hum report.

Weekly CFTC positioning data will be released in a few minutes and there is a good chance that EUR short positioning surges. The figures are calculated as of the close on Tuesday — when EUR/USD made a fresh 2-year low.

It would be a stretch to expect positions to fall below the record at -214K. In general, positioning is a contrarian indicator so a higher number (less negative) is better for euro shorts.

Ten-year Treasury yields will close the week near 1.50% — the lowest weekly close in 6 weeks — but Treasury traders are showing minimal appetite for lower yields.

On Wednesday, the extreme demand at a $21B 10-year auction was quickly wiped out without seriously challenging the June 1 low. Today, the market crept lower again but was beaten back to 1.50%. A test of resistance at the 55-day moving avg at 1.67% or the June high of 1.73% may be in order.

Another indicator that bonds are about to slump is this week’s Barron’s cover.

USD/JPY has similarly attempted to break 79.00 several times this week and failed.  The correlation hasn’t been excellent lately but a rebound in T-note yields would like push the pair above 80.00 and signal a better tone in risk assets.

Lockhart is such the tease. One minute he can’t decide whether the Fed  needs to ease, next minute he sounds like he’s ready to call an emergency meeting of the FOMC. The man sounds spooked as hell.

Leave it to Bernanke to sort us all out when he testifies on the Hill next week.

EUR/USD is edging toward session highs on the dovish take from the Atlanta Fed chief and on continued buying in the S&P. That bad boy is up 1.75% with about 45 minutes left to trade.

• Receptivity toward QE3 has increased
• He’s comfortable with late-2014 forecast for first rate hike
• ‘No reticence’ to act during election campaign

• I’m on the fence; want to see more data
• Europe a front and center concern
• View economy slowing pretty broadly shared on the Fed

He’s answering audience questions after his speech:

• The view the economy is slowing is ‘pretty broadly shared’ on Fed
• Decision to launch QE3 will take some more bad news
• Lockhart on the fence, wants to see a little more data

At some point, central bankers must be judged on their forecasting ability.What good are they if they’re wrong all the time.

You can’t make this stuff up. Just as the Fed’s are announcing fraud charges against the founder of PFG, the CFTC announces that it has strengthened rules to protect customer funds.

Attaboy, slam that door after the horse has gone.

The headlines are literally millimeters from one another.

And many of you wonder why have so little faith in government….

–Current Pol Support Rests On Forecast Of Output,Job Growth By Year-End
–Monetary Policy Not Impotent Nor Has It Reached Its Limit
–Should Have Modest Expectations Of What Further Action Can Accomplish

By Brai Odion-Esene

JACKSON, Mississippi (MNI) – If the U.S. economy continues along
its present weak path, as indicated by recent economic indicators, then
the current stance of monetary policy will become “untenable,” Atlanta
Fed President Dennis Lockhart said Friday.

In remarks prepared for the Mississippi Economic Council Lockhart
also said the risks related to further expansion of the Fed’s balance
sheet are “manageable,” but cautioned that expectations for what
additional action by the central bank could accomplish should be
“modest.”

Lockhart, a voter on the Fed’s policymaking Federal Open Market
Committee this year, said a compelling case has not yet been made that
structural adjustment has played “a dominant role” in slowing economic
activity and job growth.

However, “Elevated levels of joblessness have been very persistent
and the burdens of the very weak job market have been particularly
harsh,” he said.

“And to make a broader point, I am concerned that the already
significant long-term jobless problem may harden into something more
structural,” Lockhart added.

Lockhart said he voted in favor of the $267 billion extension of
the Fed’s ‘Operation Twist’ program at the June FOMC meeting, but
stressed that his support for current monetary policy rests on a
forecast that sees a step-up of output and employment growth by year-end
and into 2013.

But recent data has shown the economy only added 80,000 jobs last
month and that U.S. manufacturing activity contracted as well.

“I think the stakes in the policy discussion around the FOMC table
today are very high,” Lockhart said, with the steering group faced with
deciding whether or not to respond more aggressively “to the economy’s
apparent weakness.”

“It’s possible another policy decision looms,” he said. “If the
economy continues on the track indicated by the most recent incoming
data and information, that forecast will become untenable, as will the
policy premises underlying it.”

Lockhart noted that he and his colleagues at the Atlanta Fed have
“recalibrated” their risk evaluation, and are now acknowledging “darker
possibilities.”

“Risks associated with developments in Europe, the so-called fiscal
cliff here in the United States, and a global economic slowdown have
weighed more heavily on our outlook,” he said.

While some worry about the risks associated with a further
expansion of the Fed’s already swollen balance sheet, Lockhart argued
that, in his opinion, “some further use of the balance sheet to promote
continued recovery and/or financial stability brings with it manageable
risks.”

“I think reversal of the cumulative balance sheet scale and
maturity structure can be accomplished in an orderly manner,” he said.

Lockhart said he does not believe that monetary policy is
“impotent” or has reached it limit. However, “I think we should have
modest expectations about what further action can accomplish,” he said.

The decision to engage in additional balance sheet expansion should
be undertaken “very judiciously” he counseled, stressing that monetary
policy cannot be a miracle cure — especially in the absence of action
by fiscal authorities.

** MNI **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$]

The price broke above the 200 hour MA(green line) /back above the underside of the trend line at the 1.5536 area and stayed above.   The high is now being taken out at the 1.5557 level and triggered some stops (up to 1.5571).  A full retracement of the weeks range takes the price up to 1.55768.  We are almost there.

Looking at the daily chart, there is an intesection of the a downward sloping trend line and the broken support trend line extending up from the June 1 low. That intersection comes in at 1.5606 area.  It would be quite a surprise to get up to this level today.  However it becomes a target for early next week. 

The GBPUSD has a low to high trading range of 329 pips this month. The lowest prior trading range was 315 pips in Feb 2011. Prior to that you have to go to 2002 to have a more narrow month range.  If the price is to extend the range, which way would it break?  Good question and not sure I could answer it with any certainty.  With the Olympics coming up there is likely going to be quirky economic data coming out which should make deciphering the true state of the economy difficult at best.   

The price is a few pips from the months midpoint at 1.5556.   Perhaps that is as good a place to hide if the level of confidence of a trend move up or down is low.  It may also be a level to judge bullish and bearish. Stay above = bullish. Move below = bearish. Use the 100 hour MA as a confirmation for the bears (at 1.5534 currently).

The best trade this week, in percentage terms, was short EUR/JPY. It felt like a volatile week but the pair is down just over 100 pips from last Friday’s close.

Technically and fundamentally, I see no reason to get out of shorts until a test of the June 1 low of 95.60 but from a risk/reward perspective, it doesn’t add up for fresh shorts. A bounce to 98.00 appears equally likely to a continued fall below 96.00.

Probably best to stay on the sidelines until there is a bigger bounce.

Looks like the market-makers are still nursing shorts after EUR/USD’s sudden reversal at mid-morning in NY.

Dips are quite shallow, barely below 1.2230 while supply lies overhead at 1.2260 on up to 1.2300. Small stops are seen around the 1.2265 level from the guys caught short earlier in the session.

Looks like we may have put in a short-term bottom on the intraday charts with a double bottom in the 1.2160/65 area. A rally to the 1.2320 area could unfold if the textbooks are to be believed. Buying dips to 1.2220 with a tight stop for a 1.2320 target looks like a reasonable play if you’re willing to take home a EUR/USD long, not something everyone is comfortable doing amid a crisis environment in Europe.

EUR/USD trades quietly at 1.2238, supported by a 1.5% rise in stocks and bounces in most commodities.

–President Obama Ignites Hill Sparring Over Fate of Bush Tax Cuts
–Congressional GOP Pushes 1-Year Extension Of All Bush Era Tax Cuts
–Budget Group Urges Congress To Craft ‘Comprehensive’ Deficit Cut Plan

By John Shaw

WASHINGTON (MNI) – President Barack Obama’s call for Congress to
renew only those Bush-era tax cuts for families making $250,000 or less
triggered a week of furious tactical skirmishing on Capitol Hill as
Democrats and Republicans frantically searched for the political high
ground to attack the other party.

None of the maneuvering appeared designed to actually find a
bipartisan plan to pass any version of the tax cuts anytime soon.

Obama began the week Monday urging Congress to extend Bush-era tax
cuts but exclude the wealthy.

“I’m not proposing anything radical here,” Obama said from the
White House. “I just believe that anybody making over $250,000 a year
should go back to the income tax rates we were paying under Bill
Clinton, back when our economy created nearly 23 million new jobs, the
biggest budget surplus in history and plenty of millionaires.”

Congressional Republicans immediately pounced on Obama’s plan,
charging that the President’s policy would increase taxes on small
businesses and hamper job growth.

House Majority Leader Eric Cantor scorched Obama’s tax plan and
repeated the House will vote during the last week of July on a one-year
extension of all Bush era tax cuts.

“On the heels of another devastating jobs report, President Obama
has doubled down on bad policy by calling for tax hikes on working
families and small businesses,” Cantor said.

House Ways and Means Committee Chair Dave Camp said Obama’s plan
would increase taxes on small businesses and other job creators and
would “further weaken an already fragile economy.”

Camp said a one0year extension would “create a path for tax reform”
next year.

The fate of the Bush-era tax cuts is one of the key elements
related to the so-called fiscal cliff.

The fiscal cliff refers to the convergence of three coming fiscal
events: across-the-board spending cuts scheduled to begin in January;
expiration of Bush-era tax cuts at the end of the year; and the need to
increase the statutory debt ceiling at the end of this year or early
next year.

Most congressional Democrats support Obama’s tax plan, but some
said the threshold for extending tax cuts should be $1 million rather
than $250,000.

Throughout the week, there was relentless tactical maneuvering in
the Senate over the fate of the tax cuts.

The Senate was technically debating a bill that would allow
businesses to deduct the full cost of equipment purchased this year and
to extend to firms a credit of up to $500,000 to offset 10% of the
amount they spend to expand their payroll in 2012 compared to last year.

Senate Majority Leader Harry Reid said the bill would give small
businesses “some kind of shot in the arm that they need very badly.”

Senate Minority Leader Mitch McConnell did not attack the small
business tax bill on substantive grounds but said it should serve as a
vehicle for a wide ranging debate on tax policy with votes on both the
president’s and the GOP’s tax cut plans.

McConnell appeared to catch Reid off balance by suggesting
immediate Senate votes on both Obama’s tax plan and the Republican plan.

Reid initially objected to McConnell’s motion, saying it was
critical to first pass the small business tax bill before shifting to
the larger debate on the Bush era tax cuts.

But then Reid modified McConnell’s request so the two plans would
need only a simple majority vote to pass the Senate. However, McConnell
rejected this proposal.

House Speaker John Boehner said Thursday the House will vote at the
end of this month to extend the Bush era tax cuts for a year and taunted
Democrats to offer an extension that would apply to only those making
$250,000 or less.

Boehner said a one-year extension of the Bush era tax cuts is an
“appropriate course of action” and would “stop the largest tax increase
in American history.”

As Democrats and Republicans skirmish over tax policy, the
Committee for a Responsible Federal Budget, a budget watchdog group, has
urged policymakers to get to work on the central fiscal challenge facing
the United States: crafting a “comprehensive” deficit reduction plan.

“Given the country’s current fiscal path, policymakers should avoid
extending any policies without either paying for them over a reasonable
timeframe or accompanying the extension with a plan to put the debt as a
share of the economy on a clear downward path,” the group said in a
statement.

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

[TOPICS: M$U$$$,MFU$$$,MCU$$$]

• If economy continues on track indicated by recent data, policy premises underlying forecast become “untenable”

That is a Greenspan-worth muttering that means the Fed will do more if data doesn’t improve ASAP.

• Fed may need to “respond more aggressively”‘
• Regional business contacts have shifted from optimistic to cautious
• Concerned that jobs problems may become structural
• Stakes in FOMC decisions now very high
• Expectations about what further mon pol can accomplish should be modest

Translation: the economy is starting to stink and if it continues, there isn’t much we can do. A touch of USD weakness on the dovish comments.

The S&P 500 continues its slow march higher that began late yesterday.

The index was last up 18.5 points to 1353. A climb above 1355/56 would overcome the 61.8% retracement of the drop since the second week of April and point to a retest of 1375.

The FX market is consolidating since the earlier breakdowns but a rally above 1356 may signal another round of risk appetite.

Berlusconi to speak at his parties convention shortly. Speculation is that he will put his hat in the ring for another go at the PMs office.

I wait in hope. No one is more fun to cover than my man Sil.