Over the weekend, the Spanish PM won re-election in his native region (Galicia) where he increased his majority. In Basque country on the contrary, the separatist/nationalist parties gained at the expense of the PP party of PM Rajoy. Nevertheless, it keeps the possibility of Rajoy asking for a bailout open, which is a support for risk appetite. It has now become obvious why Rajoy was delaying a request for a bailout; it was all about votes and elections. The EUR/USD has nearly erased Friday’s losses and Asian equities are narrowly mixed, distancing themselves from Friday’s disaster on the Dow and NASDAQ. In Europe and the US, the eco calendar is empty and the event calendar uneventful.
Whether US equities will find their composure or not today might be the most important driver for EUR/USD. But that is all about earnings reports and confidence.
Friday was a risk-off environment linked to US earnings disappointments (partly published in late trading Thursday) dominated trading in all markets and led to extra profit taking in EUR/USD. Traders also were disappointed after the lack of breakthroughs at the EU Summit as an additional trigger, just like another statement of Rajoy that he is in no hurry to ask for a precautionary bailout package.
Bonds did rather well on Friday and changes in the global bond markets were modest too. Pre-weekend profit taking in all markets on the back of substantial moves earlier last week is probably a better explanation.
This morning trading has been light in thin conditions, suggesting indeed that Friday’s moves had no longer lasting meaning. EUR/USD closed the session at 1.3024, 42 ticks’ loss from Thursday’s 1.3066 close. This morning the EUR/USD is exchanging at 1.3059.
As the week closed the EUR/USD traded sideways until mid-morning European time, apparently untouched by the EU statement that was released overnight. Around mid-morning, the pair started to fall in a move that would only be briefly interrupted in early US trading and at first wasn’t much influenced by equities. In the US session, attention turned to the technology sector with Google, Microsoft and Apple registering sharp losses, due to earnings disappointment and in case of Apple a reassessment of the outlook of its results that will be published on Friday. GE and McDonalds results weren’t liked either. Equities moved much more than other markets on Friday and the ST technical picture is becoming more interesting (support nearing), but also here we consider the moves as profit taking. The risk-on climate doesn’t seem to be in danger for now.
The pair seems to be just bored. There shouldn’t be much activity today and the EUR/USD can be expected to remain in a fairly tight range. The only risk and driving factor might be unexpected press or news from Spain, but none is expected at this writing.