Talking Points

• French, German Bond Auctions Headline Quiet European Calendar
• Dallas Fed Manufacturing Gauge May Limit Near-Term Risk Aversion
• Yen, Dollar Rise as BIS Warns on Limits of Loose Monetary Policies

The US Dollar and Japanese Yen pushed higher overnight as Asian stocks declined, stoking demand for the go-to haven currencies. The MSCI Asia Pacific regional benchmark equity index fell 0.4 percent after the Bank of International Settlements (BIS) said despite central banks being “cornered” into prolonging monetary stimulus, accommodative policies“have their limits” in its annual report. The statement is anathema for traders hopeful that the Federal Reserve will help the fragile US recovery offset headwinds from sluggish performance in Europe and Asia with a third quantitative easing effort (QE3), which policymakers opted against last week.

The economic calendar is nearly empty in European hours, putting the spotlight on a pair German and French bond auctions. Berlin will sell €3 billion in 12-month bills while Paris will offer €8.4 billion in 91-, 154- and 364-day paper. Markets will look to average yield and bid-to-cover readings to gauge sovereign stress in the region ahead of the two-day EU leaders’ summit slated to begin on Thursday. While the short tenor of the debt on offer would typically make for a quiet outing, the lack of anything more significant on the docket may force a response from price action.

Later in the day, the Dallas Fed Manufacturing Activity gauge comes into the spotlight. The release marks one of several key surveys traders will use to establish where the world’s top economy stands in June. Expectations call for the smallest decline in 3 months, which may help offset risk-averse tendencies in the near term. S&P 500 stock index futures are pointing firmly lower in late Asian trade however, warning that a meaningful reversal in sentiment will be an uphill battle.

Asia Session: What Happened

Euro Session: What to Expect

Critical Levels

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

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