EUR USD (1.3025) Spanish economic woes have meandered back into market focus with an amazing speed. Yesterday investors felt unsettled by the ECB data showing that the Spanish banks borrowed a record amount of euros in March and worried about their dependence on the ECB. Today a report in mainstream media dwells on a Spanish economist’s calculations that the reduction in budget deficit to 5.3 percent of GDP would require around €53-€64 billion instead of the €32 billion believed earlier. As Spanish yields hover around six percent, the sentiment around the forthcoming Spanish auctions remains strained. The pressure on the euro thus remains. In the same vein, a Financial Times report quotes a Central Banking Publications survey which reveals that fund managers at 54 central banks around the world are having a rethink about euro-denominated assets and have either reduced their exposure to eurozone bonds (29 percent) or are planning to sell euro-dominated assets this year. Although the survey was conducted between January and March this year, it nevertheless is revealing about euro’s prospects. So while short-term the elevated speculative bets on the declining euro (CFTC) may act as a cushion to limit the sharpness of the downward trend, there are several indications that the euro is heading lower. Yesterday, however, it managed to recover from a multi-month low. While there is hardly any convincing explanation for this rebound, it nevertheless did not suffice for a break above our stabilisation point 1.3235. Downside risk remains at 1.2805.
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Deutsche Bank