Risk Rally Continues, Euro Extends Rebound

While risk markets extended Friday's rally in Asia today, euro also appreciated broadly. In EUR/USD's break of 1.24 level is confirming near term momentum and strength in the common currency is also seen against other counterparts. Last week, ECB President Draghi indicated that the central bank could restart bond buying to bring down borrowing costs of Spain and Italy. And that was affirmed by comments from other ECB officials.

Executive Board member Coeure said that the governing council "will not accept higher sovereign bond yields due to fears of the reversibility of the euro." Meanwhile Coeure also urged ECB to consider ways to channel liquidity where it's most needed. Separately, Governing Council member Visco said that last week's ECB meeting was an "important step forward for the common currency and for spreads." He also expected a "more accommodating monetary policy in the next few months" should economy continues to slow down.

In Greece, the Troika said in a statement over the weekend that "discussions on the implementation of the program were productive and there was an overall agreement on the need to strengthen policy efforts to achieve its objectives." Troika will "take a break" now and come back in early September for final reveal before deciding on release of the next tranche of bailout funds. Meanwhile, Greek Prime Minister Samaras will need to complete the EUR 11.5b austerity package before meeting Troika again.

In Spain, it was reported last Friday that prime minister might request for a full sovereign bailout. But more likely than know, he will wait for more clarify on ECB's moves before making a decision. Rajoy noted that "depending on the circumstances, we will make one decision or another... When somebody asks for something, they must know what they're asking for".

Meanwhile, Spanish Finance Minister de Guindos said over the weekend that "when we know the details, we'll have a more precise calendar." The Spanish government still has around a month to make the decision as the next government bond auction will take place on September 6.

Latest CFTC report, as of July 31, showed traders further pare euro short positions, which dropped by -9% to 139k contracts. Yen longs rose for the fourth consecutive to 7k to 33.2k contracts and that's a massive change from March's low of -67.6k net shorts. Aussie net longs also rose for the second consecutive weeks by over 10k to 37.2k contracts. One important development to note was that Canadian dollar position changed from -2.4k net shorts to 12.4k net longs and could have turned the falling tide that started back in May.

Looking ahead, the economic calendar is rather light today. Main focus will be on RBA meeting tomrrow, BoE inflation report on Wednesday, BoJ meeting on Thursday, plus other growth data to be released later in the week.