Look Out Below EUR?

It’s been a long week with lack of opportunity for just reward unless you had been bullish AUD. The US drought has managed to push up grain prices, drag the CRB index through its 200DMA, therefore allowing the AUD to become the markets new darling. Does the IMF losing faith in the EURO project justify all those short single currency positions? If so, “Show me the money,” this weeks tight range has only managed to provide many with fleeting returns. The overnight session has seen the majors trade in another narrow range, with a slight bias towards USD strength. This has occurred mostly on reports that China’s government last night warned local governments against easing property curbs after home prices in 70 major cities grew in June after eight straight months of declines.

The EUR lacks Euro session momentum as the financial markets tread water waiting for the official approval of the Spanish bank bailout. The EU finance ministers are expected to formally sign the banks bailout deal today and this amid protesting austerity violence in Spain. The world is seeing similar scenes to that of Greece. The aggressive Spanish cuts implemented so far have failed to stem the country’s borrowing costs. Yields continue to hover close to their recent highs. Already this week the Spanish treasury came to market, but was made to pay. With a populous outrage expected to escalate can only end up being EUR negative for the regions third largest economy.

Capital markets are expecting the Eurogroup to be able to clarify a number of points by days end. Investors will be keen to see if any of the EU’s bailout vehicle will set aside funds to buy Spanish debt. The market has been speculating about this most of yesterday. Furthermore, the market deserves more details on the bailout itself and how it will take place. At the previous meeting +EUR30b was earmarked for Spanish disbursement by month’s end. Will there be more promised sooner? This week has been mostly about following the yields. Expect Spanish 10’s to be closely watched. The swift erosion on Spanish sovereign debt since the June EU summit has failed in providing a wake up call to EU policy makers.

Rather than rely on the markets sentiment towards Spain debt prices, EU policy makers are staying the course with an unchanged game plan, suggesting that Spanish debt price action has to become more sever before it starts to register a policy change. Analysts have noted that the Spanish erosion of gains is “based on the back of a reality that the German position remains that the risk should stay with Spain.” Unsustainable debt levels will only cause another Greek fate situation for Spain. The market will probably end up seeing restructuring of sovereign debt as well as private investors burden sharing on financials. A full sovereign Spanish bailout will only temporarily slow down the overall solution process. Follow the money and follow the yields for now!

The techies are whistling a different big picture tune theses days, believing that the gradual daily upward trend from last weeks lows support the EUR. However, their hourly studies are beginning to tick south as the single currency shoulders their first line of support around 1.2230 as Spanish yields take on 7% again. Until this upward trend is firmly broken, intraday market sentiment is looking to own EUR’s on slightly deeper pullbacks but with tight stops. These stops could make it an interesting day, especially if the Eurogroup serves up any surprises. The macro positions have stayed firmly short and must be breathing a sign of relief that their stop out point above 1.24 has not been tested.

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EUR Remains Headline Slave