Euro Drifts Lower, Yen Higher; Aussie Spanked

The US dollar is broadly higher today. The drivers continue to be the same. European debt crisis continues to weigh on sentiment and, separately, world growth worries continue to elicit policy responses, though the lack of stronger support for QE in the FOMC minutes may have also bolstered the dollar bulls.
 
Brazil delivered the expected 50 bp rate to bring the Selic rate to a record low 8%. South Korea surprised with a 25 bp rate cut to 3.0%. This follows recent moves that include China, the UK, the ECB, and Denmark.
 
The BOJ tweaked its asset purchase program earlier today. It increased the purchases of short-term instruments by JPY5 trillion, but reduced the credit loan program by the same amount. While this sounds a net wash, there may be more than meets the eye. The credit loan program was under-utilized and therefore a shift of funds away from it makes increase effective purchases. Modest adjustment, but the direction is telling.
 
The risk of another rate cut in Australia increased following the disappointing June employment report, which saw a tick up in the unemployment rate to 5.2%, with a loss of 33.5 full time jobs, which all but wipes out the 36.4k full time jobs created in May (revised from 46.1k).
 
The Australian dollar is leading on the downside. It has fallen through the the 20-day moving average for the first time since in over a month (June 6). It comes in near $1.0160, which is near the lows seen in recent days--once support, now resistance.
 
The euro itself has fallen through $1.22. It is the eighth consecutive session of lower lows.  Euro bears are in control, but look at the options market. The pricing suggest the bears are buying calls for protection of short positions.
 
Sterling has broken down as well. It is flirting with support near $1.5450, the lowest it has been since June 8. The next level of support is seen near $1.5400.
 
French President Hollande's honeymoon is surely over. As we have noted before, his first month in office was still about campaigning, with parliamentary elections following the presidential ones. However, now he has turned to governing and there are many hard choices that go well beyond the tax-increase laden budget correction. Today Peugeot announced 8k cut in jobs on top of the 6k previously announced. Other companies are also reportedly planning layoffs. The French government is said to be planning another aid package.
 
In Spain's Rajoy's new austerity measures are prompting a hostile reaction. The three percentage point hike in the VAT is drawing the ire. Tourism, which accounts for about 10% of GDP is warning of losses. The auto industry warns that the VAT will also hit sales. Later today Spain is expected to unveil a new funding scheme for the regions.
 
Turning to the US, there may be some downside risks to the weekly jobless claims as the July 4th distortion may be seen. Next week's report coincides with the survey week for the July non farm payroll report. Yesterday's 10-year note sale was well received with indirect bidders appearing to scoop up a record amount. It is difficult to envision today's 30-year bond sale going as well. Still the demand for safe havens is clear.
 
On balance, the FOMC minutes are seen as reducing on the margins ideas that the a new round of asset purchases are likely at the next meeting (July 31-Aug 1). Bernanke's Congressional testimony next week will of course be scrutinized for clues, but it is arguably too early to expect a shift. The real focus is likely to shift toward the Jackson hold confab at the end of August (shades of 2010?).