Review: The German parliament approved the bank package for Spain, which resulted in a positive tone in the financial market.
UK retail sales did not impress. Quite a few downward revisions of recent months’ figures. The macro-economists noted that it could be attributed to an additional bank holiday as well as extraordinarily heavy rains. All other things being equal, retail sales and the other important economic indicators must increase over the coming months if GBP is to strengthen further.
The outcome of the auction of Spanish government bonds was higher-than-expected yields, which goes to prove that investors are not yet quite convinced that the bank/rescue package for Spain will suffice or that it will be approved. It should be borne in mind that Germany is to vote on the EFS approval in early September.
Market sentiment: The unrest in Syria as well as the accusations that Iran is involved in recent days’ escalation of the MENA crisis caused the oil price (Brent) to increase sharply again. Since 22 June, Brent has increased by 22%. This strong increase is beginning to affect the FX market. Generally USD has been kept down, and EM currencies (especially those exposed to oil) are becoming overbought again.
A glance at EURUSD and the EM complex reveals that all the weak stops have been pressed out. Hence we may be in for yet another couple of days with sideways market movements. Keep an eye on a possible brief turnaround for EURTRY, EURUSD, EURGBP and EURSEK. Against a turnaround is especially the poor Spanish auction (yesterday, the yields on 10-year Spanish government bonds were again above 7%). This contributes to the negative sentiment associated with EUR.
Today’s macro-economic news: Nothing much on the agenda today. The most interesting event will be the statements that may be given in connection with the Euro-group’s teleconference on the Spanish bank package.
EURUSD (NEUTRAL): The very short-term trend continues to signal ‘buy’ EURUSD. A breach above 124.10 will be significant for a movement up towards 125.30-126. On the other hand, trading below 121.60 will result in further pressure down towards 120.
EURPLN (BUY): We recommend that investors buy EURPLN with stop-loss at 412.74.
EURSEK (BUY): We recommend BUY EURSEK at the current level.