After the throw of new liquidity commitments by central banks, the risk now is that the longer Spain decides to hold back from asking a bailout, the more anxious markets will grow, until the inevitable occurs, and 'Cervante's Land' gets the rescue. The question of "when" not "if" is a sure bet, but the immediate consequences are markets may be moving toward pricing out the OMT related gains until the Spanish government bites the bullet.
Spanish successful auction bad news for risk assets?
Yesterday, Spanish auction - a new 3-year BONO and a 10yr tap - was successively conducted, with bid-to-cover ratios and yields abating any anticipated fear. Spain has now completed 82% of its yearly planned issuance.
Risk, however, is that Spanish PM Rajoy, amid good results in auction and lower yields in long paper, will have some more days/weeks for manoeuvre until the market sends him down to earth, reminding him - through higher yields - delays are not welcomed when so much is priced in risky markets.
As Divyang Shah, Analyst at IFR Markets, notes: "A successful sale could prove to be bad news for risk markets if it reduces the pressure on PM Rajoy to act. The hope had been that with the ECB OMT carrot, Spain would be more willing to embrace a bailout and thus meet the conditionality needed to trigger outright bond buys."
EUR/USD on the bounce, what side regains 1.30 key
Odds are high for range trading tactics to dominate the price action in early Europe, amid an economic calendar looking quite bare. Fluctuations in price likely to be driven by intermittent stop hunting coupled with the never-far-prospect of spikes on a headline-by-headline basis, with sentiment shifts related to EZ/Spanish negotiation leaks, Troika headlines.
Currently, EUR/USD traders, as suggested in yesterday's Europe open report, appear to be entertained selling rallies into strength, making so far true two premises, one being buying multi-month highs offered poor risk reward ratios, and secondly, perhaps more compelling, as the daily makes lower lows, traders are pricing out the potential for further delays in the Spanish bailout request.
The technical picture in the most liquid pair in the FX market, as it stands ahead of the European open, still paints a grey landscape for buyers short term talking, with the spot rate testing offers ahead of 1.3000, area of strong dispute broken yesterday, now acting as resistance. The bounce in the EUR/USD, as Valeria Bednarik, Chief Analyst at FXstreet.com, notes, "remains so far limited" to get buyers much excited. Technical support at 1.2935 - intraday traffic lows - followed by 1.2915 are the obvious support levels to watch on the downside.
According to Fan Yang, Technical Strategist at FXTimes, "The question now is whether the pullback will break above 1.30. Around 1.30, there is also a declining trendline. Holding under1.30, and the declining trendline with the 1H RSI holding under 60 would all be signs that bears are still in charge after a pullback. In the bearish scenario, the next support pivots to look out for in the short-term are 1.2875, and 1.2815. A return above 1.30 and above the declining trendline would refocus the market to the upside even if we are in a medium term consolidation."