EUR USD (1.3020) Downbeat Chinese GDP data probably contributed to pushing the euro to the months low. But as Spanish borrowing costs increase to the levels that forced Greece, Ireland and Portugal to resort to bailouts, the investor focus is now meandering back to the eurozone. Moreover, the latest ECB data showing that the Spanish banks borrowed a record amount of euros in March is hardly confidence-inducing for the euro investors. Not surprisingly, the upcoming Spanish auction will be under scrutiny. In the similar vein, the upcoming French elections are catering to uncertainty – on the weekend President Sarkozy did not shy away from stating that the ECB should be more proactive in boosting growth in the eurozone. The ECB, probably, acutely aware about the sensitivity that the investors have shown on the prospects of the banks’ asset purchase programmes, was also quick to react. Board member Jörg Asmussen reiterated that it is up to the local governments to tackle their debt problems. However, despite this rather neutral comment, Draghi-led ECB history shows that bond purchase programmes are also likely to be used should the market confidence in peripheral assets dwindle. As the debate about growth-hindering austerity versus stimulus is again on the political forefront, time is at least, what a pro-active ECB can buy. The CFTC data shows elevated shorts in the euro. These might just suffice to decelerate the euro’s decline towards our downside potential at 1.2805. We anticipate the strongest nearby supply at 1.3235. An interim resistance is at 1.3105.
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Deutsche Bank