Monday, June 11, 2012

EURUSD Gaps Higher on Spanish Debt Deal


After vehemently denying on Friday that Spain was on the verge of receiving a bailout, surprise surprise, over the weekend Spain made a formal request for €100 billion to shore up its troubled banks.  The funds are expected to thwart a run on Spanish funds and allow companies to continue having access to credit.

As expected, the initial reaction from the Forex markets has been positive for the EURUSD, as the pair gapped open to start the week above 1.2600 after closing last week at 1.2515.   Elsewhere, the EU progress led to an across the board rally among Asian equities, with both European and US stock futures also moving higher.
Looking ahead for the EURUSD, the big question is whether €100 billion will be enough for Spain to avert a larger bailout.  Much of that answer may lie in how Spanish sovereign debt trades.  Currently, Spanish banks holds are heavily proportioned with Spanish sovereign debt and many traders are expecting that they will continue to be buyers are the bonds with their bailout funds they receive.  As such, if sovereign debt prices which fail to hold onto their early gains Spanish banks will be under pressure again to find new funding.

Short Term Technicals

On the short term technical side, the EURUSD needs to hold above the 1.2600 figure to prove lasting demand.  After multiple trips above 1.2600 last week, the pair was rejected and settled around 1.2500.  As such, if the EURUSD today also can’t hold 1.2600, it would reveal that selling pressure from last week continues to be present and could trigger a quick wave of selling pressure as Forex traders take profits on the trade.

No comments:

Post a Comment