The Irish people finally got out and protested about what’s going on in their country while the EU / IMF convoy is trying to close the terms on the bailout program before the markets open. In another debt-laden country, Spain, there are regional elections in Catalonia. Both events and tensions in Korea will impact EUR/USD trading when the Asian session begins. Here’s an update.
Ireland – Protests, talks and haircuts
As many as 50,000 people took to the streets of Dublin in protest of the expected budget cuts. Despite the freezing weather, many Irish got of their homes and demonstrated against the austerity measures.
The Irish government, led by PM Cowen and FinMin Lenihan has a very fragile majority for passing the 15 billion euro cuts, planned for December 7th. In the meantime, talks resumed between the EU / IMF delegation and the Irish government about the bailout program, estimated at 85 billion euros.
There is fear that the deal may include a haircut to senior bondholders in banks’ shares. This was ruled out earlier in the crisis, but it’s on the agenda now. German Chancellor Angela Merkel already mentioned “burden sharingâ€. An Irish haircut may be an example of how bondholders don’t get what they’re promised – they aren’t paid for lending money. This can to the mess.
They aim to complete the details of the aid deal during the weekend before the markets open on Monday. A positive message to the markets is expected to calm them down.
EUR/USD
Forex is ahead of European stock and bond markets, and we’ll be able to see a response to a deal already when the first Asian session begins, between Sunday and Monday.
EUR/USD had a disastrous week, losing around 450 pips and closing at 1.3230. Last Sunday, the news about Ireland asking for an aid request brought a good start to Euro, but as the Irish government got into trouble, 24 hours later, the Euro plunged.
See more technical levels and analysis in the fresh EUR/USD forecast.
We’ve seen the yields rise on Irish bonds and on Spanish bonds as well. Spain’s 10 year notes reached a record yield on Friday – 5.25%, although they closed slightly lower.
Catalan elections
Also in Spain, we have a risk event on Sunday – the Catalan elections. Citizens of Spain’s relatively rich region will vote in local elections. This is a test for the ruling Socialist party, that is currently in power on the national and regional levels.
Calls from opposition parties in Catalonia range from autonomous tax collection and up to full independence from Spain. The results are likely to show a change in Catalonia, that could add to instability in Spain – sometimes considered the upcoming “domino†in the European debt crisis, after Portugal.
Here’s more about the Catalan elections.
US – South Korean exercise
Last but not least, the border clash between North and South Korea wasn’t the end of the story. Tensions are still very high. In the funerals for the South Koreans marines that were killed, the army vowed to revenge. The US-South Korean 4 day naval exercise will begin on Sunday, as scheduled, even though North Korea warned that this is dangerous.
Any spark in the Yellow Sea will add to risk aversion and will boost the US dollar. Here’s some more about the Korean crisis.
With American traders returning from Thanksgiving and Black Friday and lots of economic indicators, we’re up for another exciting week in forex.
