It was another day of pain for Spanish markets with 10 yr yields topping the 7 percent mark to represent the highest borrowing costs since the Euros inception. This 7 percent level is a particularly important psychological milestone for investors which marked a request for financial aid from Greece, Ireland and Portugal. Although Spain has already sought financial assistance for the troubled banking sector, diminished appeal for Spanish government debt may see a sustained break above the 7 percent region suggesting a sovereign bailout is just around the corner.
Nonetheless, we're seeing currencies tell a decidedly different story amid continued negativity from Europe. It's clear there are a series of factors driving currencies, on the one hand we're seeing a reluctance to hold/build short positioning in the lead up to Greece's elections which continues to force a squeeze of shorts in the market, while on the other hand, U.S stimulus expectations coupled with headlines suggesting contingency plans will be in place should Sunday's election fail to achieve the desired result.
A subdued inflation print and less than inspiring weekly jobs report kept the quantitative easing dream alive for U.S markets overnight which provided natural resistance for the U.S dollar, in-turn providing a platform for risk currencies such as the Australian dollar and Euro to move higher.
U.S Consumer Prices rose at an annual pace of 1.7 percent in May, down from 2.3 percent in April. Economists had anticipated a slightly higher reading of 1.8 percent. Core inflation rose 2.3 percent on year in May matching last month's gain.
The premise of intervention from global central banks has also underpinned gains earlier this morning with a Reuters report suggesting nations are preparing to provide liquidity if this weekend's Greek elections fail to provide markets much needed closure. All things considered we've seen robust support for risk currencies, the Euro made a break to the upside of $US1.26 earlier this morning and currently remains supported above the figure. We've also seen the Aussie dollar intermittently test U.S dollar parity overnight with heavy resistance at the figure broken in the last hour forcing a further squeeze out of short positions and weaker hands in the market. At the time of writing the Australian dollar is buying 100.2 US cents.