Despite week US economic data, market sentiment has once again shifted towards Europe with traders/investors focusing at the events in Spain. It has announced its budgetary measures and bank stress test according too, which out of fourteen Spanish banks 7-banks will be requiring Euro 59.3 billion, which as per market expectation.
In other developments Greece already hit by Euro 57 billion bad loans, which accounts for 25 pct of the total loan portfolio has demanded another bailout package that relies on TORIKA’s report. On Friday late evening, Spain’s bank stress tests was announced, which said that out of 14-banks, seven banks require further capital of Euro 59.3, which was in line with market expectation.
The other key factor that market has been waited to determine the trend is rating agency Moody’s decision on Spain.UK escaped downgrading and maintained its “AAA-rating”, but could not avoid “Negative Outlook” due to weak economic growth. Fitch warned that UK has hardly any fiscal space available and there is every possibility that UK could be downgraded in future due to its huge budget deficit.
Pound Sterling that was enjoying Bull Run since last 7-weeks received hammering after the Fitch announcement ending is upward journey to close at 1.6165. Next week Cable could come under renewed pressure if UK’s PMI and housing data shows signs of weakness, but market will more keen on Bank of England’s policy announcement to determine economy’s next direction.
Earlier this week, FED official’s disagreement to QE3 announcement helped US Dollar to recover and Gold eased. Euro suffered most due to eventful week in the Euro-region that did not support the currency dragging Gold down to $ 1735, before gold making recovery after the news of Chinese Central Bank liquidity injection.
Another major problem that is brewing up, after the three European nation meeting of Germany, Nederland and Finland has set a new debate on ESM bank recapitalization, which says that the “legacy assets” should be the responsibility of national authorities. This clause clearly puts a big question market about the money already given to Ireland and Spain, which is interpreted that the money already given is not part of ESM. If this is true, then this could be negative news in the making for the European currency.
However, this week market should start focusing on Spain’s budget, as the environment is still very fragile with elections knocking at the door. Catalonians are demanding for their rights and calling for independence though the government is confident that this not a big issue and can be easily tackled. Spain will immediately require Euro 59.3 billion for bank’s capitalization and another Euro 40 billion will be required as per budget need.It is not going to be a easy sail for Spain, as austerity backed budget cuts, which came soon after 9-month being part of reform package for the much needed bailout package that was slightly higher than the market expectation seems to be a politically motivated move to show a more disciplined face to the ECB to obtain bailout package.
Market that initially reacted in a positive tone to austerity backed budgetary announcement was short lived probably realizing that in reality it requires determination and need to act to act to implement reforms.
Therefore, market will be waiting for Spain’s bailout out request and any delay or further demand for more austerity measure will make market more nervousness and keep them on their toes. Europe is once again in doldrums and therefore, unless we hear for a Spanish bailout request, I will prefer to pick the top to sell and buy US Dollars.
GOLD @ $ 1771.80 = Gold that was clobbered and fell to $ 1735 after the FED official statement that QE3 will be less effective benefited from three happenings that lifted the Yellow metal. Strike call by the South African miners, weak US economic data and liquidity injection by the Chinese Central Bank. Gold has a heavy top around $ 1788-90, break of this level will encourage for test of $ 1800-04 zones, which is not a favored move. See risk that if $ 1760 surrenders, we could see another plunge towards $ 1725-30 zones or else $ 1825.
EURO @ 1.2858 = Euro may struggle to move beyond 1.2980 and should exhaust around 1.2950. See risk for drop to 1.2770 and break of this level will encourage for a test of 1.2680-10 zones. Only upside break of key resistance level will challenge 1.3080. Range for the week 1.2650- 1.3080.
GBP @ 1.6165 = We have seen quite a few attempts to break 1.63 levels but failed to make gains beyond that level. Any upside rally should top around 1.6250 for another down move, but requires falling below 1.6070 for 1.6015. A break here will encourage for 1.5955. Range for the week 1.5940 – 1.6320.
JPY @ 77.92 = So far we have witnessed a perfect fall and a bounce back from 77.50. Yen needs fall below 78.30-40 zones for test of 78.8090 zones. On the upside Japanese currency has strong resistance around 77.15 only break would encourage for 76.85 is not a favorable move. Range for the week 77.10 – 78.90.
CHF @ 0.9398 = Swiss currency has strong resistance around 0.9300-10. I am expecting a fall and test of 0.9440 zones as up move should exhaust, a break of this level will encourage for a test of 0.9470-80. Ranges for the week 0.9290 – 0.9520.
AUD @ 1.0376 = The key this week is 1.0450 break encourages for a test 1.0510-20. However, I am expecting up move to exhaust and break of 1.0320 should challenge 1.0220-50 zones. Range for the week 1.0210 – 1.550