When The OIL PRICE Below $130

EUR/USD has ended an eventful week confined to a relatively tight trading range, still between 1.5800 and 1.5900. The tight range is a modest surprise considering the jump in Germany's May PPI, but highlights the lack of conviction in the market. While flows were non-descript, those who were involved reacted to better than anticipated Citigroup earnings and the coincident uptick in equity markets by moving to the bottom of the range. While there is little doubt that sovereign names have interest, they were obvious by there absence, with bids under the intraday range and offers well up in the 1.5900 price range.

USD/JPY did not disappoint or surprise anyone today. With the bounce in equities that followed on from the more positive than negative series of earnings reports, JPY was softer across the board. But, as equities failed to sustain early strength and with a holiday in Japan on Monday, activity was anything but inspiring. Prices were confined to a relatively tight range, where little in the way of price discovery can be found, extending from near 106 to near 107, ending near the upper end of the range.

GBP suffered modestly in reaction to the generally firm USD that has been supported by the climb in equity prices and the nearly unchanged crude oil price. EUR/GBP spent the day nearly unchanged once again and GBP/JPY rallied, which was more a reflection of the broad based retreat in JPY than any particular demand for the cross.

USD/CAD range was from 1.0020 to 1.0080, which says it all !

AUD/USD trading range may have been the tightest on the day. While there was little in the way of interest shown on either the buyside or sell side, prices were confined to a range that extended from 0.9700 to 0.9740. With a trading range like that, it is difficult to write about flows.

Bonds:

The bearish fervor continued into Friday as stocks as well as market sentiment were buoyed by better-than-expected earnings out of Citigroup (as it shrugged off the worse-than-expected results out of Merrill Lynch after the close on Thursday). With a barren economic calendar and no Fed-speak to guide price action, treasuries remained at the whims of the ebb and flow of equities into the close to end weaker with the front-end underperforming as bearish sentiment built into the close. Adding to the bearish price action were decidedly bearish comments from Fed's Stern just before the close. By the close, 2s @ 2.62% (off by 13bps), 10s @ 4.08% (off by 9bps) and 2s30s @ 204bps (flatter by 8bps).

Fed's Stern states that the Fed can't wait for the end of the crisis to raise rates.

Crude oil, $129.00...-$0.29.

Agency spreads: 2s, Freddie/Fannie, -4.00 bps/ -3.25 bps, 5s, Freddie/Fannie, -4.75 bp/-4.00bps, and 10s, Freddie/Fannie, -3.50bps/ -2.00 bps.

Interest rate swap spreads: 2s @ 100.75...+1.00 bps, 5s @ 99.25...+0.50 bps, 10s @ 76.00...+0.25 bps.

Equities:

Stock indices ended mixed as most stocks declined led by weakness in the technology sector after both Google and Microsoft posted disappointing Q2 results. The intraday price action was choppy and erratic but the overall indices outside of the tech-heavy Nasdaq went out fairly close to previous levels.