Spain having it all

Data/Event Risks:

• ALL: The risk remains of more comments from officials ahead of the EU summit which starts tomorrow.   Generally (as always) this is not seen as a game-changing event for the euro.
• USD: The housing data (housing starts, building permits) should not be a major risk, this generally having to be very out of line with expectations to impact the dollar.
• GBP: The minutes to the MPC meeting have the potential to soften sterling if there are more signs that members are looking to extend QE; the current program is coming to an end next month. Inflation could well be heading higher short-term however.

Idea of the Day

So, the euro was higher because Spain thinks that the mere presence of a credit line will be enough to restore market confidence and push borrowing costs down further. This seems to be like getting an overdraft facility with a new bank and expecting to get better terms with your current bank. Such a credit line (part of ECB agreement last month) can, in theory, last only a year. The IMF/EU will demand austerity which will continue to bear down on the economy. It looks a stretch to think this arrangement will allow Spain to turn a corner. The euro will realise at some point, but not right now it seems.

Latest FX News

• EUR: Firmer tone from Tuesday is holding as Moody’s maintains Spain’s credit rating at investment grade, with hopes remaining for precautionary credit line which spurred euro higher yesterday.
• USD: Latest presidential debate seen initially as far closer than the first in which the Republican Romney was considered to be ahead.
• AUD: Pulled higher, but dragging behind the gain seen on the euro. Uptrend on EUR/AUD remains intact, trend-line support coming in at 1.2624.
• CNY: Another high for the Chinese currency overnight, with USD/CNY moving down to 6.2530.   Markets are gearing up for the release of GDP data tomorrow, expected to slow to 7.3%.
• CAD: EUR/CAD surging higher yesterday, now at a 3 ½ month higher and not far from the 1.30 level last seen in mid-June. Canadian central bank governor sounded bearish on growth yesterday.