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Friday, March 09, 2007

EUR/USD: Sovereign Bids Holding Back Tide

Sovereign bids continue to absorb EUR/USD sales as the market pares bearish bets on the greenback across the board. Stops below the 1.3075 level may prove too tempting to ignore if the market can gain one-more does of downside momentum. 1.3045 is support should that scenario unfold.

Helping the USD today is the renewed focus on interest rate differentials as Fed rate cut expectations are postponed and dealers contemplate a top in the ECB tightening process. 10-year spreads have widened out to 63.5 bp in favor of the USD versus 57.5 ahead of the data. 1.3115/20 offers are eyed on rebounds while small stops are seen on a rebound above that area. EUR/USD trades at 1.3100.

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