This week dovish market sentiment is still persisting supporting the greenback versus the single currency which has been hit again by a new credit rating downgrading of Spain by S&P this time following Egan Jones to be BBB- with negative outlook.

S&P based this downgrading on the well-known pressure on the Spanish economy commonly but the market has seen in the hidden reasons of delaying the Spanish official request for bailing out its struggling banking sector another excuse for selling the single currency accumulating worries about its financial situation outlook.

While the market participants are looking to realize whether or not the Spanish government was over-cheered by the falling of its issued bonds yields which will be in their focus after the ECB OMT decision and the better than expected Banking stress tests results which came better than expected requesting showing the need for only 59.5b euro recapitalizing this sector and also the European praising of its 2013 13 billion euro budget cuts which has been criticized from inside of Spain as it has included reducing the public spending by 58% aiming for driving the average maturity of its debt to 5.8 years by offering 207.7b euro of debt next year to drive the debt to GDP ratio to 90.5% and the deficit to GDP ratio to 4.5% by God's will.

As the markets were waiting for such request to be announced following the banking tests results and sometimes some spread out rumors were telling that it will be in few days but they have been shocked by last week announcement of Spanish government PM Rajoy that it is not to be soon which has been followed by his finance minister telling that Spain is not in need for bailing out but it can be in need for the ECB intervention for driving down its bonds yields but that can be considered an  unofficial request too carries more doubts about the ECB role in this case with no announced request for joining the OMT too from Spain which has denied its need for the ESM assistance which has been deployed this week.

While the Spanish economy which has contracted y/y by 1.3% in the second quarter and by 0.6% in the first quarter of this year faces continued rising of the unemployment rate approaches 25% with 79.6k more came out of the working forces in September after losing 38.2k in August to have 4.705m unemployed workers.

By God's will, EURUSD can meet now supporting level at 1.2803 which could hold in the beginning of the month while breaking it can open the way for a solider supporting area include its previous supporting level at 1.2753 and 1.2740 whereas the 38.2% Fibonacci retracement of the rising from 1.2041 to 1.3170 before 1.2464 again which meets also the 61.8% Fibonacci retracement of this same rising while creeping up again from here can be faced 1.30 psychological level before its lower high at 1.307 after its recent top 1.317 which has been formed after its recent while breaking it can open the door for 1.3282.1.3384 before 1.3485 again whereas it has formed its lower high on 24th of last Feb after forming a bottom at 1.2623 on 13th Jan of this year which came as an end of a down channel has started from 1.4245 on 26th of last October 2011.

 

Kind Regards

FX Market Strategist

Walid Salah El Din

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