(EU) Euro was spurred higher after FT Deutschland speculated Spain was drawing near to a formal rescue plan that may be unveiled as early as next week. Press report also indicated Spanish govt has formulated a specific economic reform program that was being discussed behind the scenes among EC and Spanish govt officials.
(EU) During the session some Euro weakness being attributed to the SNB selling EUR/AUD (this is part of diversification from maintaining the EUR/CHF peg); AUD/USD for its part was up +0.8% above $1.05.
(EU) There was also a report that a Hedge fund was taking off a hedge on a large fixed income play, the single currency dipped to a low of $1.2955. There was also some chatter that Middle East Central Banks were in the market as buyers, this took the currency higher above $1.3035.
(EU) IMF’s Lagarde speculated Spanish banking recapitalization would be somewhere in €40-80B range, below the €100B secured from European officials;
(GR) Greece official: Approx 95% of aid package to be agreed on by Sunday 23rd Sept; troika to leave by end of week – financial press – IMF pushing creditors to accept a new haircut that would not involve the ECB or the IMF
(GR) Press reported that the troika may put off its report on Greece until after the November US election to avoid roiling the global economy.
How to interpret these headlines?
Recent EURUSD consolidation is obviously due to the correction of the gains from Fed’s surprise QE3 announcement last week and the launch of OMT by the ECB the week before. Of course, today’s report out of SNB on their diversification into AUD also provided some clarity as to how EURUSD dropped to the low-end of 1.2900 against on such a short notice, but it is important to note that the overall trend for further bullish breakout remains unchanged, in my opinion…
Considering that Spain may request a bailout as early as next week, the current Spanish Banking Aid is more than adequate, and the fact that Greece may get a stay of execution until November, we have now a good recipe for EURUSD upward breakout in the coming weeks. Traders who have gotten out of EURUSD longs are now looking for areas to re-enter, as a below 1.3000 EURUSD exchange rate is not only attractive, but relatively safer than 1.3150 entry. I believe we’ll see EUR resuming its bullish trend soon, capitalizing on both U.S. QE3 and ECB’s OMT promises; I’ll be shooting for 1.3475 target on the EURUSD in the next few weeks…