Daily outlook - 10 May 2012

U.S. Dollar Trading (USD) the Greece tragedy continued overnight with little progress made in the post-election negotiations. European sovereign bond yields started to rally and we saw the Spanish 10 Yr rise above 6% in a return to the debt crisis. Stocks feel for a 6^th day but there was little follow through and we are poised to test upside in Asia. Looking ahead, Weekly Jobless Claims forecast at 369k vs. 365k previously. Also March Trade Balance forecast at -50bn vbs. -46bn previously.

The Euro (EUR) Spain nationalized a large bank overnight and we saw continued political pressure from Greece pushing the EUR/USD below 1.3000 and then key support at 1.2950. The downside was limited however and the market had little follow through. The lack of movement is signaling concern to the bears who expected bigger moves after six days of stock selling. The Sterling (GBP) the GBP/USD fell through 1.6100 in Europe but rebounded at the first sign of stabilization with the buyers still in control given the Euro situation. The EUR/GBP nearly broke 0.8000 at the height of Greek and Spanish banking concerns but so far the level has held intact. Looking ahead, March Industrial Output forecast at -0.3% vs. 0.4% previously. Also ahead, Bank of England Rate announcement forecast unchanged at 0.5%.

The Japanese Yen (JPY) EUR/JPY selling and weak European stocks helped support the Yen across the board. The reversal in sentiment in the US session saw some relief for the crosses with AUD/JPY and GBP/JPY able to bounce. The economic data from the US will have to improve to get the USD/JPY back above Y80. Australian Dollar (AUD) the AUD/USD tested 1.000 but the level held and in Asia today we have seen a large rally after stronger than expected April Jobs data. UPDATE April Employment Change at 15.5k vs. -5.5k forecast. April Unemployment Rate at 4.9% vs. 5.3% forecast.

Oil & Gold (XAU) the XAU/USD hit fresh 4 month lows yesterday breaking $1600 to hit $1580 in the US session before bouncing into the close. OIL/USD fell to $95.25 before rebounding with US stocks back above $96 and is consolidating the large losses.

Pairs to watch

EUR/USD Still under 1.2950 but ready to bounce?

AUD/USD Time for short covering?

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