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Forex: Early dollar strength

We’re seeing some early dollar strength coming through, principally vs. the EUR and JPY, but the kiwi and Aussie were also under pressure during the Asia session in the wake of the disappointing trade data from China. USDJPY is making new highs for the month, above the previous reading of 120.74, whilst EURUSD has fallen for the sixth consecutive session to threaten a move below the 1.05 level. The euro move is also being helped by the further crushing of yields in the Eurozone. The betting is now when the German 10 year government bond yields turns negative, as has already been seen in Switzerland. Currently it is yielding just 0.16%. Bonds of a shorter maturity have been ruled out by the fact that the ECB said it would not buy bonds with a yield below the deposit rate, currently at -0.20%. We’re also seeing 10 year yields in Spain and Italy not that far from the 1% level. On any measure, this amounts to a fairly major distorting to capital markets.

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