EURO Patience for Grind Lower

1.29 and 1.28 are the near term ‘big' picture support levels that this market is hoping to take out for the long suffering bear positions. Interestingly, theses overall short positions have been greatly reduced and technically, the market is beginning to get net long EUR's at ‘these' lower levels. On previous visits to this region, investors were happy to stay the course, but this time, impatient price action and personal short term objections are looking for a quick flip scenario. Last week, the bears were feeling the squeeze to the top and today, this Monday morning one certainly gets the feeling that too many new speculative ‘long' positions may have been added at the wrong level. Market fundamentals are telling us that if you are patient, better overall price averaging could be applied.

With Spanish worries continuing to mount, it's no wonder that the single currency is back under technical pressure to start the new week, especially now that option structures have been removed. EUR cross action continues to add weigh to the headline pair, with EUR/JPY hitting multi-month lows and EUR/GBP printing its own 19-month low. Fresh Euro-zone debt jitters and yields reflect such concerns, especially now that the ‘Iberian peninsula' is very much in the spotlight.

This morning, Spanish bonds are again being pummeled, trading north of the psychological +6% level for the fist time since December, on growing fears that the country's weaking economy will prevent the present government from paring its deficit. When there is a flight to Euro quality there is limited choice for the Euro investor. More time than not, it ends up being the German bund, and with this current situation has the bund short-term yields recording record lows.

Spain is expecting to come to the market again this Thursday. This debt sale will be seen as another test of investors appetite for lower rated government debt. Last month, the sale received “tepid demand.” If we happen to experience a bond rout, the ECB will be put under more pressure to restart its Security Markets Program (SMP). This Central Bank reaction would only ever be seen as a regional temporary solution. Something more structural would probably require adding a “boost to the IMF's fire power.”

So far, Euro concerns have outweighed the PBoC announcement over the weekend, where China is to double their own currency's trading range outright on any given day to +1% from +0.5%. It is supposed to be a well timed political move that proves that reformists are in charge and continue to push forward key financial reforms. Currency flexibility can only be positive for “equities by making it easier for policy makers to balance growth and inflation.” For now, it seems that the weak EUR longs are concentrating on selling their position on rallies along with the technical bears. Let's hope we do have a repeat of last weeks insufferably slow price movements!

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Is the BoC to ‘Walk the Walk' next week?