Range trading continued overnight as risk currencies continue to make positive advances against the USD and JPY. In early morning trading the EUR has strengthened and tested the 1.2985 resistance area as rumors filled the market involving a Spanish bailout. According to the rumor, a Spanish government official was quoted stating that there will not be any resistance within the Euro bloc if there were to be an aid request by Spain.
This is completely contrary to the comments that were made earlier in the day by Angel Gurria, the secretary general of the Organization for Economic Cooperation and Development (OECD), that Spain’s reluctance to request a bailout was justified due to the fact calls for help by Madrid might be rejected. The comments by Gurria were made at the IMF’s semi-annual meetings in Tokyo. Apparently Germany’s Finance Minister Schaeuble is suggesting that Spain hold off on asking for aid. According to Gurria, the problem here is not Spain being reluctant about asking for aid, but rather about the EU members suggesting that if help were requested, it might not be granted. With Spain’s bond ratings having been cut to almost junk status, Spain’s PM Rajoy has been under intense pressure regarding a possible aid bailout request.
In other news, the IMF managing director Lagarde has suggested that the debt-ridden countries such as Greece and Spain be given more time, maybe 2 years, to resolve their fiscal deficit problems. Her rationale here is that recovery could be hurt if the austerity measures were too harsh. Greece and Spain welcomed these comments, but Germany did not share in there happiness. This could become a sticking point as we move forward in bailout talks for both Greece and Spain.
On an happy note, the European Union has won the Nobel Peace Prize for its long-term role in uniting the continent, according to the Norwegian Nobel Committee. The award is seen as a morale boost for the Euro bloc as it struggles to resolve the debt crisis.
The Canadian Dollar has traded in a small range overnight, remaining below the .9800 level as traders remain impressed with the narrowing of the Canadian trade deficit. Adding to the positive feelings on Canada are higher commodity prices, specifically crude oil, which is Canada’s largest export. The Australian Dollar has remained firm as well following Canada’s lead and flirting with the 1.0300 level in overnight trading.
The BRICS nations, Brazil, Russia, India, China and South Africa are apparently working on creating a pool of reserves to provide a “fall-back” of financial support. It is being modeled after a similar pool in Asia that has created an emergency liquidity fund to help the region weather global financial shocks.
USD/MXN followed the rest of the currencies, trading in a small range overnight, as the market rejected the 12.90 resistance level falling back towards the 12.83/85 support level.
Further reading: Europe – Recession Looks Deeper, Also in the Core