The gap between German bunds and French OATS continues rising. French yields are currently at 3.30%, while German ones are at 1.75%. The gap of 1.55% isn’t the worse we have seen – it passed 1.60% earlier.
France is in the middle between the “Club Med” or PIIGS countries and the richer northern countries. The rise in French yields, while German yields slide, show that France is leaning towards the south.
The rise in French yields happens at the same time that Italian yields take a break and drop for a change.
French banks are heavily exposed to Greek and Italian debt. Recent reports by Credit Agricole and Societe Generale show higher leverage levels. This is seen using any method.
EUR/USD already recovered from the lows it reached beforehand, trading between the 1.3550 and 1.3650 lines. The trough was just above 1.3480. For more on the euro, see the euro/dollar forecast.