News Sunday that a bail out fund was going to have up to €100B available to rescue Spanish Banks gave the market a boost. Though the headlines were large, and the details lacked specificity, it did give the euro a nice rally.
The EURUSD gaped higher, from 125.14 to 1.2575 and then sprinted to 1.2665. Opening gaps on Sunday evening are always interesting and usually these gaps are filled rather quickly.
Indeed such was the case in the twenty four hours that followed.
A market that behaved so well early, quickly reversed direction, and is currently trading under 1.2460. This market action is surprising when consideration is given to the record short positions in the Euro. But had the news really been constructive - a real solution to the Spanish real estate problems - the market would have given us a much stronger rally.
While the Spaniards initially celebrated what they thought was a bail out without austerity as prescribed in the other rescue packages, such was not to be the case.
Yesterday the Spanish ten-year bond hit a euro area record high, 6.83%, as Germany’s Merkel said the Spanish Banking sector must reform, if it going to be the recipient of rescue funds.
Spain is being forced to borrow from Europe to bailout its banks because markets won’t provide the money directly to Spain. Spanish Premier Rajoy’s victory lap proved to be a short one.
We are still wary of the gigantic euro short in the futures market, but there seem to be no European leaders with a plan. It would not surprise me if future Euro summit meetings become more than a little testy.
The EURUSD acts like it wants to trade lower, but I am inclined to watch.
