EUR/USD continues to slide lower as troubles continue to mount. The Spanish bank bailout is now in doubt after finance ministers from strong countries seemed to have pushed it to a distant date in the future. As Catalonia prepares for elections and seeks independence from Spain, the Spanish capital Madrid was rocked by anti-austerity protests. Protests have also been seen in Greece, that went on a general strike. All in all, trouble loves the euro.
Here’s an update about technical lines, fundamental indicators and sentiment regarding EUR/USD.
- Asian session: Euro/dollar remained depressed under 1.2920 and later fell even lower.
- Current range: 1.2814 to 1.2920.
- Below: 1.29, 1.2814, 1.2750, 1.2670, 1.2624, 1.2587, 1.2520 and 1.2460.
- Above: 1.2960, 1.30, 1.3060, 1.3105, 1.32, 1.3290, 1.34, 1.3437, 1.3480 and 1.3540.
- 1.2960 continues to provide resistance.
- 1.29 is being tested as a support level. 1.2814 is stronger.
Euro/Dollar choppy after weak German data, Spanish uncertainty – click on the graph to enlarge.
- German CPI. Exp. 0%. Actual 0%.
- 14:00 US New Home Sales. Exp. 381K. Actual 373K.
- Adios to Spanish bank bailout?: Finance ministers from Germany, the Netherlands and Finland declared that bank supervision and bank bailout would only come for new banking problems and not for legacy ones. Thus, the agreements in the June 2012 EU Summit regarding a banking bailout for Spain seem null and void. Breaking the link between sovereigns and banks was a key value less than 3 months ago, and now it is gone. This means that if Spain still wants to save its banks, it will need to pour more of its money into them, at the same time as it cuts in other areas and raises the VAT. This news pushed Spanish yields higher, together with the projected future debt.
- Protests rage: Madrid was rocked by violence after an anti-austerity rally turned nasty. This adds pressure on the Rajoy government, after Catalonia declared early elections on November 25th. These elections will serve as a de-facto referendum for independence after a huge and peaceful rally was seen in Barcelona on September 11th. In Athens, a planned general strike turned violent and added pressure on the politicians not to agree to all troika demands.
- Spanish woes spooking markets: Spain continues to be beset by severe economic troubles, which is only exacerbating market uncertainty. A bailout package for Spain is not a given, just yet, after the Spanish economy minister said the country would not rush to seek aid from the ECB. The government may feel it has some breathing room after the recent 10-year Spanish Bond Auction – that was very successful. Some analysts have suggested that PM Mariano Rajoy would prefer to push the official request until after October 21, due to internal calculations. This week promises to keep the markets busy. On Thursday, as the government is expected to announce a draft budget and far-reaching economic reforms. The results of the stress tests on banks will be announced on Friday. As well, Moody’s is expected to complete their ratings review on Spain later this week.
- Greece talks with troika continue: With the troika showing some flexibility over Greek repayments, there is hope for a quick conclusion of new measures, which will later require the approval of coalition partners. Talks about a third bailout program became more loud in recent days, as Greece is nowhere close to meeting targets. Media reports in Germany noted that Greece could be in the red for as much as 20 billion euros, almost twice the previous estimate. Although the reports were denied by the Greek Finance Ministry, such talk will do little to calm nervous investors.
- European recession looms: France saw a big plunge in its purchasing managers’ indices, and the Euro-zone releases remain unimpressive. All in all, the euro-zone is contracting at a very fast pace, and this is worrying. Germany, once the all-powerful locomotive in Europe, is also producing worrying numbers, as its economy looks more and more vulnerable to the malady gripping much of Europe. No less important, consumer and business confidence is weak. The markets received a rude reminder of that this week, as German Business Climate and Consumer Climate releases fell below market estimates.
- Dollar rebounds after QE3 : After weeks of speculation, the Fed finally gave the nod to QE3 earlier this month. It launched an open ended program worth $40 billion dollars of monthly buys of MBS in order to help the housing sector, but also to encourage lending. This comes in addition to extending the low rates guidance to 2015 and continuing the existing Twist program worth $45 billion a month. This aggressive easing was later justified by Bernanke, who also said that the Fed is looking at the general picture of unemployment (including the participation rate). The dollar did take a beating right after the QE announcement, but is has since rebounded. There is growing notion that a) the move was priced in, and b) the worsening global outlook will aid the greenback.
- US economy – up, down, or both?: The housing sector has gained steam recently, even if the fresh new home sales don’t look good at the moment. Existing Home Sales looked sharp, posting a figure of 4.82 million. However, jobless claims remain at stubbornly high levels, and the improvement in the Philly Fed Index still left it in the red. As the November elections fast approach, both Democrats and Republicans will be highlighting whichever economic releases help their campaign. Given the mixed batch of releases, both camps should have plenty of data to choose from.