It seems that the crack is fast appearing in the Spanish banking system and ECB is unwilling to come to its rescue due to size of damage, which may not be easily repairable. This could be one big factor that sensing problem ahead, the Spanish Prime Minister appeared in an emergency news conference on Monday to give confidence about its banking system, which is certainly not in good shape.
The reason is very simple that the Spanish banks have already sucked in large chunk (Over ¼ pct of LTRO money) and yet Bank Capitalization still remains a big issue. LTRO requires collateralization and Spain’s banks fall short in value, which means its banking system is at huge risk and this is bad news for the Euro-zone.
Therefore all eyes will be on Spain’s bank shares and 10-year bond for further guidance, which is hovering below 6.5 pct yield and I will not be surprised to see a break. Spain’s banking share will also be watched with keen interest and world will be watching Spanish and European equity for more clues. Today’s Italian bond auction will be another important event that will be keenly watched and therefore, until of European opening EURO will surely remain under pressure unless support comes from behind the scene.
However, later in the day Euro could make a surprise bounce back either on technical ground or on false hope. I will keep you posted about the development that takes place.
PicK ToP tO SelL EurO & GolD -May 29