Euro Soft Against Dollar, Yen, Volatile Against Swiss Franc

The Euro remains soft against the dollar and yen in the Asian session today, despite some extraordinary volatility against the Swiss Franc overnight. Italian prime minister Monti said he expects Greece to stay in the Euro. But he also criticized the reforms pushed by Eurozone leaders on Greece as too aggressive. He urged Europe to, "learn how not to take too much of a short-term view." He said that the reforms could take a generation to complete. Meanwhile, Monti also said Italy could persuade Germany on the issue of Eurobonds as a "united Europe is in Germany's interest".

EUR/CHF spiked higher to 1.2075 over night but is now back trading at around 1.2020. The sudden sell-off in the Swiss Franc was triggered by rumors that SNB is going to impose a deposit tax to discourage investments. In particular, the deposit tax could be targeted at Greek tax evaders. A anonymous Greek official was quoted earlier in the week saying that some Greeks are suspending tax payments because of the uncertainty of Greek exiting Eurozone. Also, there were rumors that SNB is going to rise the EUR/CHF floor from 1.2 level. So far there is not sign of sustainable selling yet. We'd tend to view the current volatility as "volatility" only rather than a establishment of a bullish trend. Thus, we'd advise to close EUR/CHF long above 1.2050, or establish short there to some spiral down back to 1.2010 level later.

Moody's restated the negative outlook on France's AAA credit rating yesterday. The rating agency said that a clearer picture of the "actual government program to be adopted and the risks to achieving policy targets stemming from ongoing challenges in the euro area" would be obtained in the second half of the year after upcoming general elections in June. Meanwhile, Moody's also said that New Zealand's budget surplus target is compatible with its AAA credit rating.

On the data front, Japan national CPI core rose more than expected by 0.2% yoy in April but Tokyo CPI core dropped deeper than expected by -0.8% yoy in May. German Gfk consumer sentiment and final reading of US U of Michigan sentiment will be released today.