NEW YORK (BBH FX Strategy) -- U.S. dollar is mixed vs. majors Thursday in narrow ranges as eurozone sentiment remains choppy in the wake of the ECB's long-term refinancing operation.
After being unable to extend its rally Wednesday, the euro has traded heavily but is finding some modest support near 1.3050 for now. Choppy conditions likely reflect market uncertainty about the efficacy of the LTRO. While liquidity helps the banking system, underlying solvency and debt issues have not been addressed by the ECB's actions and so further eurozone tensions should reappear soon.
So far today, the dollar bloc and sterling are outperforming vs. USD and are up on the day, while the Scandies are underperforming vs. USD and are down modestly on the day.
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Equity markets are mixed, with Asian stocks largely down and European stocks opening up. Euro Stoxx 600 is up 1.1% (financials up 1.2%) while U.S. equity market futures are pointing to an up open.
Bond markets are mixed. Periphery yields are mostly higher. The US 10-year yield is down 1 basis point, Germany up 1 basis point, France down 1 basis point, and UK down 3 basis points.
The commodity complex is mixed, with oil and copper up, gold down. EM currencies were mostly firmer. ZAR, RUB, and PLN are outperforming in EM vs. USD and are up on the day, while KRW, INR, and MYR are underperforming vs. USD and are down on the day.
German Chancellor Merkel's advisor Peter Bofinger said the future of the euro will be determined in the next six months, and that its survival will require Germany to change its stance. He added that the ECB could help by capping yields on Italian and Spanish bonds.
It appears that Greece's private sector creditors are balking at the IMF's proposal for a 5% coupon on restructured debt, as the haircut is seen as too deep. Lastly, another French downgrade rumor made the rounds, one of these days the rumor will be correct.
