As we head into the second auction of 3Y funds from the ECB (results announced tomorrow), markets remain in a positive frame of mind. Bond yields in Italy are near the lows of the year, stock markets remain bullish (Euro Stoxx 50 up nearly 10% year to date) and the euro is firmer against the dollar, even though S&P announced Greece was in selective default. Despite this bullishness, it's become apparent that sentiment is still uncertain regarding this week's 3Y auction, with both bullish and bearish cases being constructed around high and low outcomes for the total allocation of funds (see our Insights blog of last week 'The ECB's LTRO dilemma'). There's clearly a risk of a classic 'buy the rumour, sell the fact' scenario around the ECB auction.
Also in today's Daily Forex Brief:
- The ECB sits back for a second week
- Turning the eurozone lending tide
- Accelerating yen weakness
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