Today's Greek bill sale pulled in solid interest.  The Government raised a greater than planned total of EUR1.56 bln in 6 and 12 mth bills at yields of 4.55% and 4.85% respectively covering both sales by very healthy amounts.  The EUR, however, found little lasting support dropping back to USD1.3560 not long after the announcement of the sale.  In many respects today's solid bill auction doesn't change the outlook for Greek funding by very much.  In fact given that the EU have offered Greece EUR 30 bln in 3 year loans there is not real challenge for Greece to issue short dated paper.  The real test is whether there is investor appetite for Greek paper at the longer part of the curve.  The Debt Office may be forced to test investor appetite next month given May's very sizeable funding requirement of EUR11.6 bln.  The Greek government will be hoping that this week's improvement in investor appetite with respect to Greek paper extends into next month.  The best way to woo investor interest would be to provide hard evidence that austerity measures are being implemented and are having an effect.  If budget reform proves to be insufficient the market will remain of the view that this week's support plan from the EU merely postpones the prospect of default.  The EUR has pushed a little higher from the USD1.3558 session low, but clearly Greek woes remain a constraint.

Sign of disagreement between the Japanese government and the BoJ are again rising to the fore.  Comments from the BoJ's Shirakawa indicating there are more positive signs in prices than negative suggests that he sees deflation as a reduced threat.  In contrast members of the ruling Democrat party have proposed that the BoJ should consider an inflation target of more than 2% and called for the yen to trade around USD/JPY120.00 (last seen in July 2007).  USD/JPY surged higher on these remarks, though selling pressure has subsequently taken its back to JPY93.15.   Overnight reports that Chinese banks could face capita shortfalls and fears of increases in Chinese consumer fuel prices had led to a paring back of risk which in turn had lend the yen support.  European stock markets have generally followed their Asian counterparts into the red this morning.  

Cable is trading on a firmer footing this morning following the publication of a strong retail sales monitor from the BRC and on better than expected UK trade data.  Impacted by the timing of Easter UK March like for like retail sales rose 6.6% y/y while export growth allowed the UK Feb trade deficit to narrow to -GBP 3.3 bln from -GBP4.7 bln in Jan.  This data suggests that finally the softer pound is having an impact on supporting the domestic economy.  Cable rose to a post data session high of USD1.5406 this morning, but has been unable to re-trace back to yesterday's highs.  Political opinions polls are suggesting that the market friendly Tory party is failing to reclaim last week's better position.  

AUD/USD has retraced its overnight losses made on the back of remarks from the RBA that interest rates were not far from 'average levels'.  USD/CAD has also pushed lower in European hours but remains shy of last night's close.  Given the proximity of parity, Canadian trade data will be keenly watched this afternoon.  US trade data are also due.  
Jane Foley
Research Director