Did Spain Already Miss the Opportunity?

The EUR continues to be pressured this morning as markets digest the news that the ECB and the Bundesbank are investigating the legality of the ECB OMT bond buying program.  This latest news was reported in a German newspaper.  According to the report, the Bundesbank may challenge the program and take this to the European Court of Justice.  

It is possible that the ECB’s new bond buying program may be in violation of the treaties for direct financing of member state’s deficits.  This would also be in direct contrast to the comments made by ECB President Mario Draghi who has stated the ECB is acting within their mandate by offering to purchase bonds of member countries in order to lower yields on bonds.  The new program has already seen progress in lowering the 10 year yield on Spanish bonds although the program has yet to begin.

Spain remains front and center this morning as the markets continue to wait on Spanish Prime Minister Rajoy.  It seems that the PM cannot “pull the trigger” and ask for the aid that the country is in need of.  Right behind Spain is Greece and now the press is stating that the Greek deficit may be higher than expected.  Third goes to Portugal where tax revenue has dropped due to unemployment.  The Portuguese Prime Minister Coelho will be announcing new proposals to make up for this shortfall.  These proposals include the possibility of higher taxes, which has triggered protests.

The problems; Spain, Greece and global growth remain but now the “solution” is possibly not there.  While staying above yesterday’s lows there is no move to take the EUR higher.  President Draghi and Chancellor Merkel will be meeting today but there is no press conference expected after the meeting.

Technically the EUR is in a corrective area having topped out at 1.3172 last week. At that point the currency was overbought so this reversal is not out of the ordinary.  Strong support is seen at 1.2825.  A move below that could see the currency head towards 1.2630. At this point the market is in a consolidation mode as opposed to a full reversal mode.  It will be interesting over the next few days to see how the market moves.

In other currency news, the USD/CAD has flirted with the .9800 level this morning.  The price of crude oil has been bouncing about and this is one of the reasons being given for the move in CAD.  A failure to stay above the .9800 would confirm the bearish movement of the currency pair.  Long term resistance on the USD/CAD remains at .9870, while support emerges in the .9760 area.

The EUR continues to trade in its trading range with the downside vulnerable as the North American trading session is set to begin.  Without any real news due out today, the market should attempt to probe the lower end of the trading range.  I would be surprised to see the EUR move above the overnight high of 1.2950.  This consolidation should continue for the next day or so as we see where this probe of the ECB bond legality goes.

Asian and European equity markets are mixed, with DOW Futures pretty flat at 5:00 am, indicating a quiet start to the US equity markets.

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