Spain’s successful debt auction on Thursday showed that the Spanish government has not been frozen out of the capital markets and its yields, even with the recent rise, are well below those of Greece. The 10-year bond sale produced a bid-cover of 1.88 (vs. 2.03 last time), while the yield rose to 4.84% from 4.04%. The 30-year bond had a better bid cover (2.44 vs. 1.4 last) but the yield rose to 5.91% from 4.76%.

The euro now appears on track for a 50% retracement of the April 12-May 6 decline, which took the euro to the lowest it’s been since March 2006. The positive sentiment was indicated technically by a bullish divergence on the MACD which was followed on June 16 by a cross higher of the 5 and 20 day moving averages for the first time since April 21st.

Meanwhile, the Swiss National Bank revised its growth and inflation forecasts higher and by implication, indicated that deflationary pressures were abating. One might assume that a bought of Swissy strengthening might be in the offing, but a cautionary tale from Japan might suggest otherwise.

The last major central bank to engage is extensive intervention was the BOJ in the late 2003 through early 2004 period however, throughout the intervention, the yen continued to strengthen just as the Swiss Franc has (except for 2 brief periods). But the Japanese experience warns that rather than accelerating the Swiss franc’s appreciation against the euro, the end of the intervention strategy could see the Swiss franc ease against the euro.

On Thursday, EUR/CHF successfully tested the record low set on June 9th near 1.3734. Today’s low, recorded as U.S. traders responded to the SNB’s developments, was 1.3741. And while it may be too early to talk about a double bottom, if the resistance at.3820 and 1.3850 can be overcome we would likely see a test at the 1.4000.

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