Foreign exchange markets and equities have seen further volatility in overnight and morning trade following a spike in Spanish bond yields to 6.51%. While bond yields remain below the critical 7% mark which will make life even more difficult for Spanish banks it was the biggest gain in yields since January showing real investor skepticism of the bailout. Exchange rates have been knocked back to their pre-Spanish bailout levels with AUD/USD  holding the 0.9820-1.0000 range today, while EUR/USD is stuck in a 200 point range between 1.2460-1.2660.

The lack of data overnight didn’t help to support markets with U.S equities trading up in the first few hours of trade before finishing over 1% lower. European markets showed slightly more optimism – re: the Spanish bailout – ending trade flat and regrouping for tonight’s session. The German Dax actually bucked the trend finishing higher, up 0.2%. Data releases tonight include U.K manufacturing production numbers tipped to come in flat after a 0.9% jump last month, traders will be looking for a stronger number tonight if we are to see further rally’s in U.K equities.

The local economic calendar is extremely bear this week with only RBA Governor Steven speaking tomorrow at 9.10am. Steven’s speech will no doubt include references to last week’s strong economic data including GDP and employment which both burst out of the blocks and surprised markets, pushing the Aussie to just above parity vs. the U.S dollar. Traders will look for any indication of further rate cuts and expect the Aussie exchange rate to be supported on any bullish comments re: the local economy.

U.S retail sales and CPI are due later in the week, with forecasts for -0.1% and 0.2% respectively. The numbers are pretty conservative and so I anticipate that anything better than expected will be seen as a positive and therefore support risk currencies and equities. Poorer numbers could see a flight to safety and a strengthening of the U.S dollar.

AUD/USD exchange rate will today likely trade flat in the absence of any economic data.