Date: Thursday 17 Jun 2010
Much of yesterday was taken up with rumours of an alleged report that the International Monetary Fund, the European Union and the US Treasury were in the process of drawing up a €250bn credit line for Spain in order that they could avoid having to tap the bailout package agreed amongst EU finance ministers.Subsequent denials by both Spanish and EU officials failed to stop spreads on Spanish credit default swaps approaching all time highs of around 223 basis points. With IMF chief Strauss-Kahn due to visit Spain today to meet with Prime Minister Zapatero, investor nervousness as well as speculation has had a fertile breeding ground.
Nevertheless Spain has continued to be able to sell its short term debt this week albeit at slightly higher rates than normal.
Despite all this speculation the single currency has held up fairly well, gaining against the pound and holding onto some of its recent gains against the dollar.
However, Spain faces an even bigger test today with an auction of around €3.5bn of longer term debt of 10 and 30 year Treasury bonds. A failure to cover these auctions could see some of the risk appetite that has returned this week, dissipate very quickly indeed.
Spain has also said it intends to publish the results of its bank stress tests in an attempt to counter speculation, that its banks and by definition itself, needs financial help.
This act in itself will put pressure on the rest of Europe to follow suit, especially Germany which has up until now been extremely reluctant to do so.
At the Mansion House in London last night Bank of England Governor Mervyn King indicated that the MPC was in no hurry to raise interest rates, despite the current high level of inflation, and fully supported the Governments plans for fiscal consolidation. This has seen sterling give back some of its recent gains.
Today’s UK retail sales figures are expected to show a relatively small 0.3% rise for May, with a year on year increase of 2.3%, while the CBI Industrial trends survey is expected to show the balance of manufacturers reporting that their orders are at normal levels rose further to -17% in June, from -18% in May.
US figures due out today include CPI for May which is expected to remain fairly benign on a month to month basis, around 0.1%, with a year on year figure of 2%. Weekly jobless claims are expected to come in around 454k, while the latest figures for the US current account balance are expected to show a deficit of $116bn.
EURUSD – the Euro has continued to tread water near the top end of its recent range over the past 24 hours unable to push much beyond this month’s high just short of 1.2360.
The next resistance level if we break above 1.2360 lies at 1.2520, trend line resistance from the 14th April highs at 1.3690.
The extent of dips so far has been the 1.2260 level and a move below here could well be a precursor to a test back towards the 1.2135/45 level which remains a pivotal level in the near term.For now the risk remains of a squeeze higher which will delay the move towards the 2005 lows around 1.1650, which may now take a little longer.
GBPUSD – having hit a high of 1.4853 yesterday the pound was unable to follow through on the move through the 1.4780, and has moved back below it heading back towards Tuesday lows around the 1.4680/90 area. A break through here would no doubt re-target the 1.4510 area.
There is also the trend line support from the 1.4230 lows of the 20th May at 1.4405, which should continue to support in the event we break below 1.4500. The key support level remains down at 1.4230/50.
EURGBP – despite the slightly firmer tone in the euro over the past 24 hours, it looks like we could well test the 0.8400 level the overall tone remains of selling the rally.
The 0.8400 break-out level remains key resistance, and while this holds then upside still looks likely to remain limited.
The twin lows at 0.8210, remain a key support but the all important 0.8170 area remains the primary objective.
USDJPY – the yen continues to trade pretty quietly in its broad range between the highs between 92.10/20 and the support lows around 90.70/80.
The dollar should still find resistance around the 92.20 area, a break of which would then target the 92.80/90 June highs.
A break back below 90.90/91.00 trend line support has the potential to re-target the 89.30 area.
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