ES & EUR/USD

Here's the overnight action in both ES and EUR/USD...

 Since my ES update last night, ES continued lower until a positive divergence showed up about an hour after the European open.

The red trendline is where EUR/USD opened the week, so the $1.32 level is still in play. ES looks a bit worse the EUR/USD so I wouldn't be surprised to see ES gain some ground on the FX pair's relative strength.

What's going on overnight?

As mentioned, the PSI is hanging on a thread, this article from the FT goes in to further detail, but basically not much has changed since last night of note.


European composite PMIs came in at 49.3, down from 50.4 in January (a reading below 50 signals contraction), and below the preliminary print 49.7 released on February 22. Eurozone Service PMI printed at 48.8 on expected 49.4, this was where much of the weakness came from.

As mentioned last week, Ireland will hold a referendum on the EU fiscal treaty and possibly make themselves ineligible for future ESM bailouts, not good with this news...


 Moody's announced that Ireland is likely to need a second bailout when its current aid program ends, and that it too may need a PSI just like Greece (Or at least covets one).

Moody’s also warned a No vote in the upcoming fiscal treaty referendum would bar Ireland from receiving further funds from the European Stability Mechanism (ESM). The agency predicted the Government would have to rely on the ESM for additional funding after the existing bailout program expires in 2014. "We expect Ireland to face challenges regaining market access in 2013 and it will likely need to rely on the ESM, at least partially, when the current support  programme expires,” it said." As a reminder, if Ireland proceeds with a referendum on the Fiscal compact, and the referendum fails, it will have no ESM support, and thus no second bailout potential.

 Last, a bit surprising, but not unexpected as this was covered last week and last night,  the ECB deposit facility usage soared to an all time record of €821 billion overnight, confirming that the LTRO 2 is not being used to finance Carry trades at all.

Since December 21 when the net funding from LTRO 1 hit the bank system, total ECB deposit usage has risen by €556 billion, or more than the net liquidity benefit from LTRO 1 (€210 billion) and 2 (€311 billion), so not only has the entire net LTRO cash been internalized but another €35 billion has been added from operations!

And thus the reason the ECB will likely not proceed with LTRO 3 and the liquidity addicted market will have nothing, at least out of Europe, while the F_E_D quietly continues reverse repo operations draining liquidity from the US financial system like they did last week.