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A report that the European permanent bailout fund (ESM) will be able to recapitalize banks such as Bankia is lifting the euro from the gutter.

EUR/USD jumped from 1.2430 to 1.2470. 1.25 is still looming above.

EUR USD Small Recovery May 30 2012
EUR USD Small Recovery - Click image to enlarge

It fell earlier to the abyss on rising yields for Spain and an awful Italian auction. Spanish yields got too close to the scary 7%. One of the reasons for Spain’s pain is the nationalization of Bankia -injecting an additional 19 billion euros for weighs on the sovereign.

Getting ESM funds is a great relief for Spain, assuming it is correct.

For more, see the EUR/USD forecast.

This move could certainly be a squeeze of shorts after the recent fall – an opportunity to cover a drop.

EUR/USD is now stabilizing around 1.2450- 1.2460.