In each of the last six cases since 2002, whenever EUR/USD broke above one of its three main long-term moving averages (55, 100 or 100 week MAs), it proceeded to break above the other two moving averages. With EUR/USD breaking above its 55-week moving average, it is set to cross above its 100-WMA (currently 1.3430) and 200-WMA (1.3533), which are 3.50% and 3.70% above the current market price of $1.3099. The road to $1.35 remains intact.
Spain 10-year yields are down 50-bps from Sep 28 piece “Win-Win for Bonos & BTPs?”, while Italian 10-year yields (BTPs) are seven-month lows below 4.80%.
Meanwhile in Greece, EU officials may finally
approve the €31.5bn tranche of the €130bn rescue package. Even Germany
is insisting that the remaining installment (originally due to be paid
in June), will be released after ‘troika’ team complete its report on
Greece’s compliance with reforms and austerity measures. One factor
increasing the probability of Greece’s passing the “Troika Test” is the
possible establishment of a special account for Athens to channel
assistance from EU & IMF. The account will be strictly aimed at debt
servicing instead of easing budget strains.
Italy 10-year yield breaks below key trendline. The
200-month moving average is also under assault. If this important moving
average is not re-established below the yield by end of month, the
follow-through to 4.50% is most likely as will likely be the case for 5%
yield in 10-year Spanish bonos. Such are two of the main ingredients
for $1.35 EUR/USD recipe.