Euro exchange rate today: A bearish EUR-USD as Spanish bond yields uncomfortably high at 6.66 pct while German businesses get increasingly gloomy

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Category: Exchange Rates

Published on Friday, 22 June 2012 08:44

Written by Will Peters

"The rejection from resistance at 1.2748 suggests scope for a move towards 1.2436" - UBS.

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The euro (Currency:EUR) remains suppressed after a 24 hours that has seen yet more confidence slip from the global financial marketplace.

The euro dollar exchange rate is unchanged on yesterday's close at 1.254 which saw a sharp decline in EUR-USD in line with sinking markets.

The euro pound exchange rate is 0.14 pct lower at 0.8031. For the latest pound/euro fx forecasts please visit our IMT site, access is free via this Facebook entrance path.



In a morning note to clients UBS note they are bearish on the euro dollar in the near term: "The rejection from resistance at 1.2748 suggests scope for a move towards 1.2436, a break under which would open 1.2386."

The German economy remains paramount when it comes to the viability of the single currency, so we continue to watch the latest data releases out of Europe's largest economy.

This morning it was shown that the IFO index shows German business morale at its lowest level in over two years.

The index dropped in June to 105.3, compared with forecasts of a reading of 105.9. But the reading for current conditions was slightly ahead of forecasts at 113.9, compared with expectations of 112.3.

The immediate focus for investors, however, remains the Spanish and Greek debt markets. The yield on Spain's 10-year bond is uncomfortably high at 6.66%, and Italy's 10-year bond is yielding 5.82%.

Stress test results on the Spanish banking system point to ‘only’ about EUR60 bn in capital needs – well below the available EUR100 bn backstop.

Spain’s Economy Minister de Guindos described this as a positive and that he would expect the MoU with the EU to be completed in 2 or 3 weeks.

EU’s Juncker noted that Spain would formally request EU aid by June 25.

Germany's constitutional court said it will need time to study the ESM framework even after its expected approval in the German parliament on June 29.

This could delay the scheduled start date of July 1, as the ESM cannot come into effect without Germany’s ratification.

Indeed EFSF CEO Regling said his working assumption is that the ESM will not become operational until July 9.

The Eurogroup informally decided to fund the Spanish banking sector bailout using the EFSF initially, and to transfer this responsibility to the ESM later.