October 10, 2012
Did the euro have a bad day or what? Euro bears were in complete control of the shared currency as they sold it off in favor of the dollar and the yen. This led EUR/USD to drop 102 pips to land at 1.2869, while EUR/JPY slid 93 pips to 100.68. What the heck happened?
Traders had the jitters over rising Spanish and Portuguese bond yields yesterday, which is why many of them shied away from the euro. Apparently, many market participants are already starting to stress about the possibility of a Spanish bailout. But really, can you blame them? After all, it would take a lot of dough to bail out a country as large as Spain. Where would the EU get that sort of money?
It didn't help that Draghi had some pretty pessimistic words to say about the economy. He outlined many risks to the economy (such as setbacks in reforms and financial instability). Overall, it seems that even the ECB head acknowledges the alarming weakness and threats to the euro zone economy.
On a more positive note, the ECOFIN meetings ended with the decision to grant Portugal its next financial aid tranche. And word on the street is that Greece may get a 2-year extension of its own! Angela Merkel was pretty vocal about her support for Greece, saying that she wants to do everything she can to help. She thinks that Greece could receive the lift it needs if only it had the money to do so... which is why many think it'll receive the next tranche of its bailout soon!
Not much on the docket from the big EZ today. So for now, it's best that you monitor risk sentiment if you plan on trading the euro. Be on the lookout for new developments that way spur risk taking and give the shared currency a lift.
"The only cable I watch is the pound baby."