Euro Drops on Spain Election Outcome, Yen Down After Trade Data

The Euro fell as Spain’s election results fueled fears of a Greece-like scenario while the Yen declined as upbeat Japanese trade data fed risk appetite.

Talking Points:

• Euro Declines as Spanish Election Results Hint at Parallels with Greece

•  Yen Lower as Japan’s Trade Report Tops Forecasts, Boosts Risk Appetite

•  See Economic Data Directly on Your Charts with the DailyFX News App

The Euro underperformed in overnight trade, falling as much as 0.2 percent on average against its leading counterparts. The selloff followed the emergence of results from Spanish local and regional elections. Exit polls suggested the establishment PP and Socialist parties too just 53 percent of the vote compared with 65 percent in 2011.

The outcome underscored the growing influence of Podemos, an anti-austerity party in the mold of Greece’s now-ruling Syriza. Traders’ negative reaction probably reflected fears that today’s results foreshadow a similarly fragmented outcome in the general election expected in November, with Podemos potentially emerging as a kingmaker in coalition negotiations. That would raise the possibility of a Greece-like fiasco in the Eurozone’s fourth-largest economy.

The Japanese Yen likewise faced selling pressure after a better-than-expected Trade Balance report offered a boost to risk appetite, weighing on the safety-linked currency. A monthly deficit of -¥54.3 billion in April proved much smaller than the -¥351.1 billion shortfall predicted by economists ahead of the release. Exports rose 8 percent year-on-year, topping bets on a 6 percent increase.

Looking ahead, market holidays in the UK, Germany and the US are likely to make for thin liquidity conditions at the start of the trading week. While this may make for relative quiet, it may likewise contribute to outsized volatility in the event that a particularly jarring headline unexpectedly comes across the wires.