[Pimpllus]

The action in rates continues to dominate – the risk is that the washout isn’t over. The EM receiving rates game may be over and that leads to more risk aversion and more trouble. But in the midst of this noise the USD has lost ground in Europe even after disappointing German trade and IP reports. There are four reasons to buy EUR today – for a retest of 1.45. The reasons: 1) Latvia. The Baltic nation has delivered what was needed for an IMF deal – so that is the next hurdle. Should be good for SEK more than EUR. 2) UK Brown. He survived a serious leadership test and remains in control. That helps GBP and indirectly the EUR as this is best outcome of the worst situation. 3) Continued reserve doubts about the USD. The China debate over the USD reserves status continued overnight. RUB float talk and rest of EM moving towards non-USD solutions. This won’t go away and adds to view that the EUR has a base ahead of the 200-day moving average. 4) Technicals. A big washout in long EUR positions has left market ready to bounce back – so the EUR 1.38 holds so expect we test back towards 1.40-1.42 zone – this is consolidation at worst. The link to US rates will remain the story, so will the growth linkage – so oil up and stocks bouncing back in Europe add to view that USD could be giving back some ground today.