The Euro is moving higher to start the week after the latest developments in Spain seen over the weekend, which showed that Spain is now seeking economic assistance from the Eurozone. Spain is now the fourth country to do this and markets are responding favorably to this, causing the Euro to rally above the 1.2650 level.
The broader weakness in the US Dollar also pushed the AUD/USD back above parity, so risk assets are the big winners so far this week. The Spanish agreement with the Eurozone could total as much as 100 billion Euros, and the loans will be paid to strengthen and recapitalize the banking sector. Perhaps what was most encouraging to markets was the fact that Spain will not be required to implement new austerity measures, so the program is less likely to meet political resistance.
How far this latest rally can extend is now the next major question and this will likely depend on the credibility that is going to be assigned to these latest attempts to strengthen the banking system in Spain. There is some reason for optimism here, as Spain will not need to increase its sales of treasury bonds at its next auctions so there is an element of uncertainty that is being taken off the table but at the same time, these loans will have a negative effect on the debt to GDP ratio in Spain, which is already at unstable levels. Bond auctions in the Eurozone today will be a good indication of where the Euro is headed in the short term but the next main event risk for the currency will be seen with the June 17th election results in Greece.
Macro data from over the weekend showed that Chinese CPI was lower (at 3 percent on a yearly basis), with Industrial Production rising by 9.6 percent. This was balanced by weaker Retail Sales for May which dropped to 13.8 percent on a yearly basis, disappointing analyst expectations. Trade Balance figures were positive, however, with exports increasing by 15.3 percent and imports increasing by 12.7 percent. Macro releases today are limited but we will see speeches made by the Governors of the Bank of Canada and the Bank of England.
The GBP/USD is higher to start the week but we are coming into some key support turned resistance which is now seen at 1.5620. This area is a good medium-term sell area and stops can be placed above the cluster of moving averages that is seen at 1.58. Targets for this trade can be seen at a retest of the lows at 1.5280 but more than likely this area will break in the coming months.
The FTSE 100 gapped higher to start the week but Fibonacci is seen close over head at 5560, so there is not much scope for further gains beyond this area. Support to the downside is now seen at 5380 and a break here will accelerate losses and target another test of 5230. MACD momentum is still in positive territory, so wait for prices to test the Fibonacci level before entering into new sell positions.