Euro zone sees euro bonds, treasury at end of fiscal union: document

The euro zone could create a treasury for the single currency and issue euro bonds in the medium term as the final stage of a fiscal union, a document prepared for this week's summit of euro zone leaders showed on Tuesday.

"In a medium-term perspective, the issuance of common debt could be explored as an element of such a fiscal union and subject to progress on fiscal integration," said the report, obtained by Reuters.

"Steps towards the introduction of joint and several sovereign liabilities could be considered, as long as a robust framework for budgetary discipline and competitiveness is in place to avoid moral hazard and foster responsibility and compliance," it said.

The report was prepared by European Commission President Jose Manuel Barroso, European Council President Herman Van Rompuy, European Central Bank President Mario Draghi and President of the Eurogroup Jean-Claude Juncker.

"The process towards the issuance of common debt should be criteria-based and phased, whereby progress in the pooling of decisions on budgets would be accompanied with commensurate steps towards the pooling of risks," said the report.

"Several options for partial common debt issuance have been proposed, such as the pooling of some short-term funding instruments on a limited and conditional basis, or the gradual roll-over into a redemption fund," it said.

"Different forms of fiscal solidarity could also be envisaged," said the document which will form the basis of euro zone talks towards a full fiscal union.

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FOREX-Euro slips, losses limited before Fed decision

 Dollar index hovers near 1-month low

* Fed may extend Operation Twist, QE3 seen unlikely

* Dollar may rise if Fed refrains from QE3

By Masayuki Kitano

SINGAPORE, June 20 (Reuters) - The euro eased versus the dollar, but clung to much of the previous day's gains on Wednesday, with investors focusing on whether the U.S. Federal Reserve will adopt further monetary stimulus to support the economy's recovery.

The euro also gained some support from signs that Greek parties may be close to forming a coalition government, and as Spanish government bonds gained a bit of respite on Tuesday after a recent sell-off.

For now, however, the Fed's policy decision due later on Wednesday is taking centre stage.

"I think the overwhelming factor is some expectation of Fed stimulus today," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

"Looking at the overnight moves, it's not just the euro that has risen. We've had a bunch of currencies taking advantage of the softness of the dollar."

The euro dipped 0.1 percent to $1.2675, giving back a bit of ground after climbing about 0.9 percent on Tuesday.

Resistance for the euro lies at $1.2748, a one-month high struck on Monday after Greek voters backed a pro-bailout party in weekend elections and fears of a disorderly Greek exit from the euro zone receded, at least for the time being.

With Spain's 10-year government bond yields having hit euro-era highs this week, fanning speculation that Spain may need a full-blown bailout, market players expect any bounce in the euro to be limited.

While investors may see some appeal in the high yields on Spanish bonds, they seem reluctant to buy until the market calms down, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

That bodes ill for the euro, which has been taking cues from moves in Spanish bond yields, he added.

"Unlike Greece, no one thinks that Spain will leave the euro," Okagawa said. "So I think market players want to grab the knife once it hits the ground, but they don't want to catch it now while it's falling," he said, referring to Spanish debt.

One idea that might help curb rises in Spain's borrowing costs is an Italian proposal, put forward at a G20 summit on Tuesday, for the euro zone's rescue funds to start buying the debt of distressed European countries.

The proposal is expected to be discussed at a meeting of European leaders on Friday.

The euro could see a short-covering bounce if the proposal is implemented, but a sustained rise is unlikely, said a trader for a major Japanese bank in Singapore.

"It probably won't be seen as a step that provides any fundamental solution, and it might just give people a good selling opportunity," the trader said.

Many market players now seem to be looking to sell the euro if it rises towards $1.2800, he said. If the euro manages to rise above $1.2830, however, that could trigger some buy back of the single currency, the trader added.

FED DECISION

The dollar hovered near a one-month low against a basket of currencies ahead of the Fed's decision on Wednesday.

The dollar index stood at 81.441, not far from the one-month low of 81.186 hit on Tuesday.

Many market players doubt that the Fed will go so far as to launch another round of quantitative easing, a policy that entails the expansion of its balance sheet via bond purchases. But there might still be some disappointment if the Fed holds off from such stimulus.

A more likely scenario is for the Fed to extend "Operation Twist", a programme aimed at pushing down long-term borrowing costs by selling short-term securities to buy longer-term ones. The scheme is now due to end in June.

If all the Fed does is to extend "Operation Twist", the dollar could head higher, said Credit Agricole's Kotecha.

"There is some, perhaps in our view, misplaced hopes for QE3 today. We believe the Fed will probably extend its Operation Twist, but think QE3 seems unlikely at this stage," he said. "So that could provoke a bit of disappointment if that is the case."

The dollar moved little versus the yen at 78.85 yen, while the Australian dollar slipped 0.1 percent to $1.0185 

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US Dollar Expected to Broadly Rise as Federal Reserve Witholds QE3

Talking Points

• All Eyes on FOMC Rate Decision as Global Growth Trends Return to Spotlight
• US Dollar to Rise as Fed Renews “Operation Twist” But Withholds QE3 Program
• Pound to Fall if BOE Minutes Show Swelling Support for Asset Purchase Boost

All eyes are on the Federal Reserve monetary policy announcement as global economic growth concerns retake the spotlight from fears of a sudden rupture in the Eurozone following the weekend’s pro-bailout outcome to the Greek general election. With Europe expected to sink into recession while Asia sees its slowest growth since 2009 (according to a survey of economists polled by Bloomberg), traders are reasonably looking to North America, and specifically the US, to offer a counterbalance.

With that in mind, an outright expansion of asset purchases would prove most supportive for risk appetite and most damaging for the US Dollar. At the other extreme, doing nothing would amount to de-facto tightening since the so-called “Operation Twist” – a scheme to flatten the yield curve in place since late September – is due to expire this month, weighing heavily on risky assets and pushing the greenback aggressively higher. We suspect policymakers will opt for a middle path, renewing Twist to maintain the current status quo but withholding an outright expansion of QE.

Indeed, with nominal US Treasury yields already near record lows and real borrowing costs in negative territory out to the 10-year maturity, the likelihood that the Fed can generate a substantial increase in lending at the margin seems implausible. Ben Bernanke has explicitly said that it would be “very reckless” to seek a modest pickup in economic activity at the expense of higher inflation, meaning a QE3 program that amounts to little more than a confidence-building exercise is unlikely. Still, US economic data has increasingly underperformed relative to expectations over the past two months, meaning an extension of Twist and perhaps another extension of the time period within which rates are pledged to be kept low seems appropriate.

With markets pining for accommodation, this is likely to disappoint investors and drive risk aversion, boosting USD against its top counterparts (albeit less so than if the Fed did nothing). The sentiment-sensitive Australian, New Zealand and Canadian Dollars will probably see outsized losses. Near-term correlation studies suggest USDJPY is more sensitive to US Treasury yields than risk appetite at the moment, meaning the Japanese Yen is likely to decline against the Dollar even as it rides haven flows higher versus the other majors.

Minutes from June’s Bank of England meeting headline the economic calendar. The announcement is likely to reflect a dovish shift in policymakers’ thinking, but that revelation in and of itself is unlikely to surprise investors after Governor Mervyn King’s unveiled a new credit-loan program last week. Gauging the possibility that the new effort will be coupled with additional QE – an outcome explicitly left open by the BOE chief – will be far more important. With that in mind, a swell in votes in favor of expanding asset purchases is likely to weigh the British Pound. Separately, Jobless Claims are expected to inch slightly lower in May, down 4,000 from the prior month.

Asia Session: What Happened

GMT	CCY	EVENT	ACT	EXP	PREV
22:45	NZD	Current Account Balance (1Q)	-1.310B	-1.145B	-2.833B (R+)
22:45	NZD	Current Account Deficit-GDP Ratio (1Q)	-4.8%	-4.6%	-4.2% (R+)
23:50	JPY	Bank of Japan May 22-23 Meeting Minutes	-	-	-
23:50	JPY	Merch. Trade Balance Total (¥) (MAY)	-907.3B	-544.4B	-522.0B (R-)
23:50	JPY	Adj. Merch. Trade Balance (¥) (MAY)	-657.2B	-347.7B	-512.0B
23:50	JPY	Merch. Trade Exports (YoY) (MAY)	10	9.7	7.9
23:50	JPY	Merch. Trade Imports (YoY) (MAY)	9.3	3.3	8.1
0:00	AUD	Conference Board Leading Index (APR)	-1.4%	-	0.2%
0:30	AUD	Westpac Leading Index (MoM) (APR)	0.5%	-	0.5%
1:00	AUD	DEWR Internet Skilled Vacancies (MoM) (MAY)	-0.7%	-	-0.6% (R+)
1:30	AUD	Dwelling Starts (1Q)	-12.6%	-2.3%	-4.5% (R+)
4:30	JPY	All Industry Activity Index (MoM) (APR)	0.1%	0.1%	-0.3%
7:00	JPY	Convenience Store Sales (YoY) (MAY)		-	6.1%

Euro Session: What to Expect

GMT	CCY	EVENT	EXP	PREV	IMPACT
6:00	EUR	German Producer Prices (MoM) (MAY)	-0.2%	0.2%	Low
6:00	EUR	German Producer Prices (YoY) (MAY)	2.2%	2.4%	Low
8:00	EUR	Italy Industrial Orders n.s.a. (YoY) (APR)	-8.6%	-14.3%	Low
8:00	EUR	Italy Industrial Orders s.a. (MoM) (APR)	-2.0%	3.5%	Low
8:00	EUR	Italy Industrial Sales s.a. (MoM) (APR)	-	0.0%	Low
8:00	EUR	Italy Industrial Sales n.s.a. (YoY) (APR)	-	-3.1%	Low
8:30	GBP	Bank of England Minutes	-	-	High
8:30	GBP	Claimant Count Rate (MAY)	4.9%	4.9%	Medium
8:30	GBP	Jobless Claims Change (MAY)	-3.0K	-13.7K	High
8:30	GBP	Average Weekly Earnings (3M/YoY) (APR)	0.8%	0.6%	Low
8:30	GBP	Weekly Earnings exBonus (3M/YoY) (APR)	1.8%	1.6%	Low
8:30	GBP	ILO Unemployment Rate (3M) (APR)	8.2%	8.2%	Medium
8:30	GBP	Employment Change (3M/3M) (APR)	135K	105K	Low
9:00	CHF	ZEW Survey (Expectations) (JUN)	-	-4	Medium
9:00	EUR	Current Account (€) (APR)	-	-2384M	Low

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.2592	1.2754
GBPUSD	1.5641	1.5783

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FOREX-Euro cuts gains as debt worries return, Fed awaited

* Euro falls to session low vs dollar

* Australian dollar rises to 6-week high vs dollar

* G20 draft communique urges bold action from Europe

By Anirban Nag

LONDON, June 19 (Reuters) - The euro fell against the dollar on Tuesday after a German court said the government had not consulted parliament sufficiently about the configuration of Europe's permanent bailout scheme, unnerving investors already wary of the common currency.

Analysts said the ruling may crimp broad powers of the bailout fund, the European Stability Mechanism, and could lead to delays in rescuing countries struggling with surging borrowing costs and mounting problems in the banking sector.

"The market has taken this negatively," said Gavin Friend, currency strategist at National Australia Bank, referring to the comments from the German court.

"We would like more details but the market wants to shoot first and ask questions later. This could curtail the ESM's powers and comes during nervous times when the impasse between the German view and that of the peripherals and the world is growing."

The euro reversed modest gains to fall to a session low of $1.2568 on trading platform EBS. It was last trading flat at $1.2580, having retreated from a one-month high of $1.2748 on Monday in its worst daily showing in nearly three weeks.

It hit the peak after parties supporting Greece's international bailout gained enough votes at the weekend to form a ruling coalition in Athens.

The euro has support levels at $1.2536, the trendline drawn below daily lows from June 1, and the 21-day moving average at $1.2530. Traders said news that a second audit of Spanish banks would be delayed until September also weighed on sentiment.

Earlier the euro was supported by expectations that the U.S. Federal Reserve would ease monetary policy, a move that would lift demand for riskier assets and drive the greenback lower.

Another round of monetary stimulus would weigh on the U.S. dollar and boost growth-linkedcurrencies like the Australian dollar, traders said. The Federal Reserve's rate-setting committee starts its meeting on Tuesday.

But overall sentiment towards the common currency was cautious as Spanish borrowing costs hovered near euro-era highs and risk of contagion engulfing Italy remained high.

"The market is still worried about the euro and there are problems in the euro zone. But the Fed is coming up and I think the dollar could see a leg down and risk will be bid," said John

Hardy, FX strategist at Saxo Bank.

"The euro is still a sell on rallies."

The dollar index which measures the greenback against a basket of major currencies was flat at 81.925, having struck a one-month low of 81.266 on Monday.

The Fed is expected to extend its long-term bond-buying through Operation Twist by a few months from the current deadline of June after a series of disappointing data.

A few are expecting it to opt for a third round of quantitative easing as Europe's troubles pose a risk to growth in the world's largest economy.

Against this backdrop, the world's major economies, or G-20, were set to urge Europe to take "all necessary policy measures" to resolve its woes and U.S. President Barack Obama requested a meeting with its leaders.

GERMANY AND SPAIN IN FOCUS

Spain, the euro zone's fourth-largest economy and more than twice the size of bailed-out euro zone partners Greece, Portugal and Ireland combined, is at the centre of a market storm as it struggles with a deep recession and bank sector restructuring.

Spain's Treasury sold off 12- and 18-month debt on Tuesday at yields of 5.974 percent and 5.107 percent respectively, up from 2.985 percent and 3.302 percent previously. The country will also sell between 1 billion and 2 billion euros of bonds due in 2014, 2015 and 2017 on Thursday.

The ructions in the euro zone periphery are likely to be reflected in a key German sentiment survey. The ZEW investor sentiment is expected to drop sharply to 4.0 from 10.8, pointing to a further slowdown in Europe's largest economy.

Against the yen the euro fell to 99.28 yen. The dollar edged lower against the yen, easing 0.3 percent to 78.86 yen and a drop below 78.61 yen will take it to its lowest in two weeks.

The dollar's move lower came as interest rate differentials moved against it on expectations of more Fed easing. Those expectations saw the growth-related Australian dollar jump to a six-week high of $1.0147.

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German ZEW Survey Predicts Weakness in Euro Bloc.

THE TAKEAWAY: German Economic confidence dropped in June -> debt crisis weighs on economic sentiment -> Euro volatile, beset by weak economic data and Greek political developments

The German-based ZEW center said its monthly index of investor and analyst expectations fellmore than economists forecast to -16.9 from 10.8 in May. The current situation index fell to 33.2from the previous 44.1. Economists had expected a reading of 39.0. The ZEW index attempts to predict economic developments six months in advance.

The report represented a marked departure from last month’s results, when the center said that economic conditions have stabilized and said that it generally expects additional positive developments out of Germany over the next 6 months.

Germany’s economy, which has kept itself afloat despite weak growth numbers, has come under pressure as increased austerity measures around Europe curb demand for German goods. Recent concerns over the uncertain Greek political situation have caused some doubts over the Euro’s future.

News today that the Greek government has formed a committee to re-negotiate the EU-Greek bailout agreement sent the Euro lower, while later news that a coalition is likely to be formed sent it higher. The single currency fell against the US Dollar and Japanese Yen after the ZEW survey’s release.

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New Songza iPad app curates music to suit your mood

 Need an energizing playlist of songs for your morning workout or perhaps one that will improve your focus at the office later in the day? A new iPad app streams music tailored to your current situation and mood.

Songza, a Internet radio service since 2007, launched its iPad app earlier this month following success with iPhone and web apps. It aims to help people find the perfect playlist for what they're doing at the moment - whether it's unwinding after a hectic week, reading the morning newspaper or hosting a cocktail party.

"We're trying to make the world's greatest collection of amazing playlists and long-form listening experiences", said Elias Roman, co-founder of Songza, a web radio company based out of Long Island City, New York.

The app's core feature is its "concierge service" that suggests situations or activities in which a user might be involved based on several factors such as day of the week, time of day, the device being used and previous behavior that the app learns over time.

For example, if it's a Saturday morning, Songza might suggest music for cooking breakfast or songs to help the user fall asleep again. If it's a weekday evening, the app might suggest music for working out or commuting home from work.

"We change the situations, filters and playlists based on things we start to learn about you," said co-founder Peter Asbill.

Upon selecting a situation, the app screens for genre, decade and mood, and for each filter, it provides three different playlists, created and curated by a team of critics, journalists, DJs, musicians and ethnomusicologists.

"The idea is (to) get people to just three playlists really quickly that they're going to love and are going to be perfect for whatever situation they're in and whatever type of music they love," explained Asbill.

The app, which aims to please many different types of users, includes more than 100,000 playlists, encompassing 18 million songs.

Despite competition from music streaming services such as Pandora, Spotify and iHeartRadio, Roman said Songza has seen its user base grow 50 percent monthly since they introduced the music concierge feature to their iPhone and web apps in March.

Asbill attributes the success to their focus on designing for mobile devices first. Within five days of its June launch, the iPad app was downloaded more than 700,000 times.

Last week, analyst Richard Greenfield of BTIG Research, providers of institutional brokerage and fund services, warned that investors in Internet music company Pandora Media Inc should be wary in the face of Songza's rapid growth.

"In many ways Songza's simplicity and focus on mobile life, reminds us of what drove Instagram's success, as consumer web activity shifts far faster than expected from computers to mobile devices," Greenfield said in his report.

Greenfield, however, said that one of Pandora's greatest strengths is its first mover advantage - that is, it was the first to build a brand in Internet radio and is also the first to enter the car.

The Songza app is free and available for all iOS devices and on the web in the United States only. The app is available for Android devices but does not yet include the music concierge feature.

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Euro Retreats From Post Election High to Fill Gap Open; Look to Buy

• Greek election results produce stable risk reaction
• Pro bailout party wins election
• Technical picture remains guiding light throughout
• G20 meeting to likely inspire fresh volatility
• Reports of formal EU plan to tackle crisis
• Spanish yields surge through key barrier

Although the Eurozone is far from out of the woods, the initial market reaction to the Greek election has been a net positive to neutral as the worst case scenarios of imminent Greek exit from the Euro are priced out. While there is still a good deal of speculation and expectation that a Grexit is inevitable, the news that a pro bailout party has won, is definitely somewhat reassuring for overall risk appetite.

Technically, the latest push higher in the Euro falls directly in line with our projections, where we have been calling for additional strength towards the 1.2800-1.3000 area before the next medium-term lower top will be finally sought out ahead of underlying bear trend resumption. Right now, the election results are helping to catalyze this latest technical upside momentum, and from here attention will shift to today’s and tomorrow’s G20 meeting, and reaction from the Greek election and impact on Spanish and Italian bond spreads. The Euro has pulled back a good deal from the Monday highs, but we also attribute the price action to a necessary filling of the gap open.

Relative performance versus the USD Monday (as of 11:10GMT)

NZD +0.41%

AUD +0.33%

EUR -0.09%

CHF -0.12%

CAD -0.30%

GBP -0.43%

JPY -0.44%

Also seen helping to support risk a bit have been articles out of the UK Telegraph and New York times which report of a formal EU plan on the horizon which will help to tackle many of the region’s problems. One of the major criticisms of the Eurozone crisis has been a lack of leadership, and should officials indeed be able to produce a formal plan, it will undoubtedly be well received.

At this point, it looks as though the Euro drop that we saw in previous weeks below 1.2300 may have been on an expectation for a worst case scenario in Greece and the peripheral Eurozone countries. As such, the ensuing rally continues to be the pricing out of that downside risk. What this also means, is that we are in no way advocating a sustained risk on trade environment, and that once the worst of the Greek elections are priced out, we very well could see some renewed risk off trade. For today, we think it is still best to stay sidelined, at least early in the day. We have already seen some wild intraday swings, and with Spanish yields breaking above 7%, it really is best to stand aside.

ECONOMIC CALENDAR

TECHNICAL OUTLOOK

EUR/USD:The market is in the process of correcting from some violently oversold levels after breaking to yearly lows just under 1.2300. While our overall outlook remains grossly bearish, from here we still see room for short-term upside before a fresh lower top is sought out. Look for the latest positive weekly close to open the door for acceleration into the 1.2800-1.3000 area, where fresh offers are likely to re-emerge. Setbacks should be well supported ahead of 1.2400.

USD/JPY:The latest setbacks have been rather intense, with the market collapsing through the 200-Day SMA before finally finding support by 77.65. We have since seen attempts at recovery and we contend that the market should continue to break higher, with sights ultimately set on a retest and break of the 2012 highs by 84.20 further up. However, at this point, we will need to see a break and close back above 80.00 to officially alleviate downside pressures and reaffirm bullish outlook.

GBP/USD: Daily studies are now correcting from oversold and from here risks seem tilted to the upside to allow for a necessary short-term corrective bounce after setbacks stalled just shy of the 2012 lows from January. Look for additional upside towards the 1.5800-1.6000 from where a more meaningful lower top is sought out ahead of bearish resumption.

USD/CHF: While we retain a broader bullish outlook for this pair, with the market seen establishing back above parity over the coming weeks, shorter-term risks are for more of a corrective pullback to allow for the market to establish a fresh higher low. As such, we see risks for weakness over the coming sessions towards the 0.9200-0.9300 area before the market looks to reassert its bullish momentum and broader uptrend.

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