The U.S. dollar continues its rally Tuesday with the euro the major culprit of the market's negativity as risks of contagion appear to be spreading to the core.
Despite more positive economic data from Germany (this time favorable unemployment numbers), the euro continues to suffer, breaking the 200-day moving average along with the 50% retracement level. The negative euro news has also found its way into positioning with CFTC reports suggesting that the market is now a net seller of euros.
Meanwhile, the risk-off sentiment, coupled with a weak consumer confidence report, continues to weigh on sterling with the price action reaching a low of $1.550.
And despite the raft of economic data, highlighting the weakness of the Japanese economy, the yen is one of the few outperformers vs. the dollar as risk aversion stokes demand for safe-haven currencies.
Elsewhere, China tightening concerns and eurozone contagion risks continue to weigh on the antipodean currencies with the kiwi and Australian dollar both experiencing selling pressure.
European sovereign bonds yields continued to increase as the weekend's debt agreement for Ireland and the establishment of a permanent rescue mechanism failed to restore confidence. Namely, 10-year Greek yields are up 15 basis points followed by a 6 basis points increase in the new target Belgium and 3.5 basis points increase in Italian yields.
In a bond auction Tuesday, Belgium raised a total of €2.795 billion, at the upper end of the €2.8 billion intended range via its offering of 106/169 day T-bills. This was better than Monday's dismal results but nonetheless the Belgium 10-year spread to bunds is 10 basis points wider on the day to 125 basis points.
Meanwhile, 10-year German yields were down 7 basis points with the 10-year U.S. Treasury down 4 basis points, increasing the U.S.'s yield advantage and further supporting dollar longs.
