• China C.Bank: Report about China reviewing euro assets is groundless. Europe will remain one of China’s main fx investment markets
  • Kuwait Investment Authority (KIA) thinking about reducing euro zone investments – Al Anba
  • Spain’s parliament approves 15 bln euro austerity package by 1 vote, 169 for, 168 against
  • UK’s Prudential shares rise sharply on rumour AIA deal may be off. Prudential says no comment on rumour and speculation. LATER: “There has been no change” to Pru’s bid for AIA. Pushing ahead with purchase – source close to deal
  • Fed’s Bullard: Keeping rates near zero for extended period carries risk of creating bubbles. But increase in discount rate unlikely right now given current strains
  • French May consumer confidence -38 vs -37 in April – INSEE
  • Italy May business morale index rises to 96.2 vs 95.9 in April, highest read since June 2008 – ISAE
  • UK CBI retail sales balance -18 in May vs +13 in April, some way below median forecast of +12. Lowest read since March 2009
  • ECB’s Nowotny: Euro depreciation vs dollar “clearly positive development, our industry certainly won’t regard it as negative”

Busy morning of choppy trade. Risk sentiment in pretty good shape so far, European stocks up nicely, oil up close to 2 bucks.

EUR/USD at 1.2285, up from early 1.2245 but some way from session high 1.2342. China denying report it is reviewing holdings of euro bonds (see above) helped give EUR/USD an early lift. An Asian sovereign stepped in selling around 1.2315 which slowed ascent for awhile, but eventually we moved on to post a session high 1.2342.

There had been much talk of sell orders lined up at 1.2340/50 and so it proved, as everyman and his dog seemingly sold up there. We were quickly moving lower, the sell-off accelerating further still as report KIA mulling reducing euro zone investments circulated (see above)

BIS and and Asian sovereign stepped in buying in 1.2245/60 area and that helped provide base for subsequent recovery. Very choppy market.

Cable up at 1.4525 from early 1.4415 but off session high 1.4586. Sterling benefitted from rumour Pru deal to buy AIA was off. Talk was that cable hedges would have to be unwound with sizeable amounts of cable needing to be bought. Reports had a certain UK clearer buying decent amounts of cable adding fuel to the fire. In late morning trade wires carried quote from source saying deal still on and sterling gave ground.

EUR/GBP at .8460 from early .8490, but some way from session low at .8423. Talk of sizeable .8400 barrier option, stops below.

USD/JPY up at 90.60 from early 90.05, EUR/JPY up at 111.30 from around 110.30, yen giving ground against better risk backdrop.