EUR/USD is showing some volatility after the markets nervously follow events in Spain and Greece. In Spain, speculation is growing that the country will require a sovereign bailout, while Greece is already falling behind on its austerity commitments. In economic releases, German Ifo Business Climate dropped to a two-year low, raising concerns about the health of the German economy. US New Home Sales will be released later on Wednesday.
- Asian session: Euro/dollar edged downwards, consolidating at 1.2064. The pair has pushed upwards in the European session, crossing over the 1.21 line.
- Current range: 1.20 to 1.2144.
- Below: 1.20, 1.1876 and 1.17.
- Above: 1.2144, 1.22, 1.2288, 1.2330, 1.2360, 1.24, 1.2440, 1.2520 and 1.2623.
- 1.2150, a clear historic separator is providing resistance to the pair.
- 1.20 is the last line of support before the post crisis low of 1.1876.
Euro/Dollar up in European session – click on the graph to enlarge.
- 8:00 German Ifo Business Climate. Exp. 104.8 points. Actual 103.3 points.
Tentative: German 30-year Bond Auction.
13:00 Belgium NBB Business Climate. Exp. -13.5 points.
14:00 US New Home Sales. Exp. 372K.
14:00 US Treasury Secretary Geithner Speaks.
14:30 US Crude Oil Inventories. Exp. -0.1M.
- Weak German data weighs on markets: This week’s economic releases out of Germany continue to have a negative impact on market sentiment. On Tuesday, German Services and Manufacturing PMIs both came in below the market forecast, indicating weakness in those sectors of the economy. Wednesday’s Ifo Business Climate release was awful, as the indicator fell below the market estimate and hit a two-year low in the process. Is the once mighty German economy catching the Euro-zone flu? The markets are clearly getting nervous, as a Germany in decline could spell disaster for the struggling Euro-zone and send the euro tumbling.
- Moody’s gives Germany a thumbs-down: Earlier this week, Moody’s reduced the outlook on Germany, the Netherlands and Luxembourg from stable to negative. The highly-respected credit agency stated that Germany and other core economies will have to bear the economic burden of struggling countries such as Italy and Spain. Although Moody’s maintained Germany’s triple-A rating, this move will likely hurt investor confidence in the German economy.
- New worries about Grexit (again): Fears of a Greek exit from the Euro-zone have again surfaced. Greece is already running into difficulty meeting its bailout obligations, such as debt-to GDP targets, and this could jeopardize the bailout funds. Germany continues to take a tough line with Greece, as German Vice Chancellor Philipp Roesler warned that Greece must adhere to austerity measures in order to receive bailout funds. Meanwhile, the EU and the IMF are holding talks with the Greek government, in an attempt to resolve the latest crisis.
- Sovereign Bailout for Spain?: Spain is scheduled to receive some EUR 100 billion in rescue funds to bolster Spanish banks and some regional governments. However, the situation in Spain continues to worsen, and there is growing talk that a sovereign (national) bailout will be needed instead. Spain’s Treasury Minister Cristobal Montoro warned that the recession would last into 2012, and GDP would fall 0.5% in 2013, reversing the original estimate of a 0.2% increase. Meanwhile, Spanish 10-year bonds hit a record high of 7.66% on Wednesday, well above the 7% threshold which is widely considered unsustainable.
- US economy showing signs of strain: The US continued to produce weak data, as there was a host of poor data late last week. Unemployment claims jumped, Existing Home Sales hit a two-year low, and the Philly Fed Manufacturing Index fell below the market estimate. Clearly, the US road to recovery continues to be a slow and bumpy one. The markets will be hoping for better news as the US releases a host of key data throughout the week.