Why Is The Euro (EUR) So Weak?

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(ES) Spain Econ Min De Guindos: rules out full-scale country bailout of Spain

(ES) Bank of Spain (BOS) Dep Gov Restoy: commented that the European debt crisis illustrated the flaw in the monetary union and noted that the ECB required tools to restore control of country’s financing costs. European banking union was urgently needed

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(BOS) forecasted its Q2 GDP Q/Q: -0.4% v -0.3% prior; Y/Y: -1.0% v -0.4% prior. It reiterated the view that domestic demand declined accelerated in Q2.

(ES) Spain borrowing cost hits record high with the 5-year yield moving above the pivotal 7.0% (7.3%) level. The 7.0% level in 5-year yields had been widely viewed as the point where government borrowing costs become unsustainable, and is the level at which Portugal, Greece and Ireland were forced to seek bailouts.

(ES) The financial press reports indicated that Murcia and Catalonia were among several provinces considering requesting a bailout. Note that Catalonia is the region with the most debt (about €45B, almost 30% of all autonomous region debt). The leader of Murcia will request €200-300M in fundin.   Spain was said to have estimated that regions require up to €26.4B. In early July, Spain’s Finance Minister said its regional funding tool had identified a maximum need of €18B for the year.

(DE) In the weekend edition of Der Spiegel, according to an unnamed senior European official, the IMF will not continue to pay any additional aid to Greece. An IMF withdrawal would create a funding shortfall of up to €50B. The official added that it is already clear that Greece could not meet its promise to reduce its debt to 120% of GDP by 2020. A September Greek insolvency has become more likely.

(GR) Head of Syriza Party Tsipras said he expect that the govt will “soon present a return to a national currency (drachma) as a national success.” Any payment extensions are “essentially a longer rope with which to hang ourselves.”

How to interpret these headlines?

After reviewing the news that hit the wire over the weekend, it is easy to see why the Euro is struggling today, breaching the 1.2100 level and heading to the 1.2000 against the USD.  With Spain facing a potential full-scale bailout, although it is adamantly denied by its Economic Minister (with no one believing him, btw), and Greece likely to exit the EU by September as it would become insolvent then, the whole EU could be facing a major collapse as the current ESM is not enough to bailout Spain, and that is not even considering the potential for Germany to rule ESM unconstitutional…

As I have said time and again, that often uncertainty is a bigger motivator than bad news for traders.  The uncertainty is driving yields above the 7.0% for Spain, and the dilemma is that there are no solutions in sight… I believe Spain is headed for a full-scale bailout by the end of 2012/beginning of 2013, and EURUSD could be heading to an even lower level than the 1.1850 we saw last week and potentially test the 2005 lows at 1.1600 level.   We’ll see.

 

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About Henry Liu

My name is Henry Liu and I am a Forex Trader and Mentor. I help traders achieve consistent income trading Forex while spending less time trading. My focus in trading is a combination of Fundamental Analysis, Technical Analysis, and Market Sentiment. Far too many retail Forex traders concentrate on just one aspect of trading, technical analysis, and ignore everything else; it is my goal (and vision) to educate every trader on how to take advantage of news trading and become more balanced traders.

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Comments

  1. Hi henry,

    Wonder ’bout the yen..why it seems like the japanese wait till the yen so highhh only then intervene..why not intervene while the yen lower..hmmm
    just wonder;

    thanks..

    • there are lots of costs both monetarily and politically when it comes to intervention, as BOJ cannot be seen as currency manipulator. They can justify intervention only when market is behaving irregularily, but not when JPY is gaining slowly and steadily, plus they know that an unilateral intervention is just not enough.

  2. Hi Henry,
    What do you think holding EURUSD & GBPUSD short a little bit longer? My target for GBPUSD is around GBPUSD 1.5380. and for EURUSD 1.2000.

  3. hi , i am still waiting for ur reply on my e mail

Trackbacks

  1. […] and just to recap, the situation in Spain had worsened coming into the week with reports of three Spanish regions – including Andalusia, Catalonia and Murcia – asking Madrid for ba…… Spanish Press reports indicated that the government estimated the regions needed as much as […]

  2. […] and just to recap, the situation in Spain had worsened coming into the week with reports of three Spanish regions – including Andalusia, Catalonia and Murcia – asking Madrid for ba…… Spanish Press reports indicated that the government estimated the regions needed as much as […]

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