The optimism surrounding Spain faded as quickly as it gathered pace as investors became increasingly skeptical that the proposed banking bailout plan would succeed in stalling the debt crisis. Yesterday started in a blast up as the market's “celebrated” the bailout for another European country if only for the briefest of moments. Spain requested and received a 125B $ bailout for its banking system over the weekend. The initial reaction of the markets saw the EUR skyrocket to as high as 1.2669 during the opening of trade this week before erasing all of its gains to end the day almost 200 points lower at 1.2485. Spanish and Italian bonds rallied as European markets opened higher yesterday only to erase all gains, Spain's IBEX made a remarkable move and reverse a 6% rise to finish 0.5% down.
There are a lot of explanations why did the market reverse all its previous gains to close at the low of the day but the common explanation is that it is now became clear to all that this banking bailout is the first step in a full bailout for Spain, which is certainly not a positive development. With a 25% unemployment, massive bank debt and a housing bubble that burst, Spain will no doubt become the fourth European nation to seek a financial bailout.
Today, Reuters reports that senior officials from the Ministries of Finance in Europe have been for six weeks now developing emergency plans in case the elections next Sunday in Greece precipitate the risk of the country leaving the currency union. Among the ideas being shuffled, some are so radical as to impose limits on cash withdrawals at ATMs and capital controls and border, according to Reuters.
The markets are expecting to fluctuate for the entire week a head of the anticipated Greece election on June 17th.
This election might indicate rather Greece is going to drop out of the EU or rather they are willing to embrace further Austerity and more financial aid.
USD/JPY Early in the morning today, IMF’s Lipton comments regarding Japan’s fiscal deficit and the need for further easing triggered a spike in the
USD/JPY chart. From a test of 79.15 areas in early Asia, the pair jumped to 79.60 highs, but was unable to extend gains above that level after several tries.
Resistance; 79.74, 80.10, 80.50
Support; 79.20, 78.75, 78