(ES) According to unnamed sources close to the government, Spain may consider requesting a full bailout if the European Central Bank does not resume its government bond purchase program (SMP). The Spanish Economic Minister de Guindos will travel to Germany to meet with the German Finance Minister later today.
(ES) Spain’s five-year yield rose above the 10-year for the first time as the inverted yield curve underscored the stress in the euro zone.
(ES) Spain’s PM Rajoy said to have raised concerns about the “European Project”
(EU) Moody’s cut the sovereign rating outlook for Germany, Netherlands and Luxembourg to negative and affirmed Finland’s AAA at stable.
How to interpret these headlines?
Spain is considering a full bailout because of its high funding costs. The 5-year bond yield surpassed the 10-year bond today, which shows investors’ fears over the future of Spain. With rumours out of Spanish Press that PM Rajoy’s team is considering exiting the EU, or SpExit, as one of many possible scenarios to regain policy control, it is definitely bad news for Euro bulls.
Although it is highly unimaginable at this stage that situation could become worse than it is, I think the saying “you ain’t see nothing yet…” applies here. ESM could be deemed unconstitutional in Germany, Moodys Fitch and S&P could downgrade Spain (yet again) to junk status, Greece could exit EU before September, and Spain could ask for a full-scale bailout by the end of August… so yes, it could get much worse.
Moving forward, I would look to SELL EURUSD or EURJPY on rallies, I believe EURUSD now has the potential of testing the 1.1850, or the 1.1600 unless significant measures take place to calm the market… Remember, the Forex market ALWAYS overreacts, so I wouldn’t be surprised to see market going even lower than the 1.1600 by year end.
Is “Spexit” (Spain Exit) Next For The Euro?
July 24, 2012 by 4 Comments