Spain Budget Released – EUR higher – All is well?

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The EUR has moved to the higher side of today’s trading range after the Spanish government announced its 2013 budget and said it meets or exceeds all EU recommendations.  This has prompted traders to go after the “risk on” currencies.  All is well, the riots have stopped, they are playing “happy days are here again” in the streets of Madrid.  Well no they really aren’t doing that. 

The market was a bit short and the short covering has seen the EUR move higher.  There is still concern regarding a bailout as Spanish Finance Minister De Guindos stated that Spain will decide on a bailout after all the information is available for EU partners.

The Spain 2013 budget plan that was announced today focuses on cutting spending rather than hiking taxes.  This was the main theme as deputy PM Soraya Saenz de Santamaria spoke at a press conference.

EUR USD Daily 6 months September 28 2012

EUR USD Daily 6 months – Click image to enlarge

The deputy PM also stated that Spain will attempt to control its budget deficit with reforms aimed at boosting competitiveness to overcome the EURO crisis.

As far as the budget is concerned, public spending will be cut by 58% in 2013.  Pensions, scholarships and interest costs on foreign debt will be the only items that increase.  Social spending will represent 63.5% of the budget.

It was also announced that the government will implement a plan of 43 new laws to bolster the Spanish Economy.  These laws will be called “Estrategia Espanola de Politca Economica (Spanish Strategy of Economic Policy).

The government also announced that it will use EUR 3 billion from the pension fund reserve fund “to cover treasury needs”.

The government will also create several organizations to supervise different sectors, including an agency to monitor regional budget targets and one that will work as a mediator to ease conflicts between companies and workers.

The budget minister, Cristobal Montoro also said that the government anticipates that GDP will contract 1.5% in 2012 and that the recession will extend into 2013 with a 0.5% decline.  He did say he expects the 6.3% deficit/GDP ratio to be met in 2012 and that the ratio will be 4.5% in 2013.  He also stated that tax revenue projections for this year will be met and he forecasted revenue to grow in 2013 by 3.8%.

EUR USD Daily 6 months September 28 2012

EUR USD Daily 6 months – Click image to enlarge

The EUR has been flirting with the 1.2900 level over the last half hour as traders decide whether this is actually as good as it sounds.  On paper it isn’t bad, but I haven’t read anything about unemployment or rebuilding the working economy.

Technically, a break of the 1.2920 level would end the “lower low” scenario and could see some reversal of the EUR fortunes.  We need a close above 1.2970 to end the downtrend.  Support remains at 1.2830 and 1.2800 on the bottom.

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About Author

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.

6 Comments

  1. Ivan Sonavia on

    The euro quoted at 1.2870 yesterday, at 4.pm Jakarta time. I am really concerned about the well being of the euro zone. The crisis in Greece, Spain and Portugal has sent the USD/IDR up above 9600.

    Indonesia has affected by the euro zone debt crisis. After all, who hasn’t?

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