Having grown more than four percent in previous weeks, the euro saw adjustment from its highs by falling against many major currencies. The underlying issue is the threat of contraction in many euro zone economies, but, as is the current zeitgeist, this was overlooked in favour of institutional announcements.

Having grown more than four percent in previous weeks, the euro saw adjustment from its highs by falling against many major currencies. The underlying issue is the threat of contraction in many euro zone economies, but, as is the current zeitgeist, this was overlooked in favour of institutional announcements.

The key issue driving the euro down was neither centered on economic data in the area nor Greece’s lack of progress in fulfilling its troika commitments, but rather focused on Spain’s bailout requirements, or lack thereof.
As European ministers clash with Spain’s elite, a bailout package is being used as bait to ensure that the nation abides by the ECB’s fiscal blueprint. Spain, unwilling to so readily conform, is keen to protect its people from the harsh effects of these sweeping austerity plans. 

We see an ensuing standoff, with neither side ready to cave. Spain can just about afford to continue its fight on the condition that its current bond yields remain relatively subdued. Headline attention will be given to Spain again this week; however other important events will be the Italian and German 10y bond auctions.

In the US last week we saw corrections in the price of the dollar as markets readjusted to the idea of QE3. Performing consistently well against most major currencies, Friday saw a relapse against the pound as good equity performance in the States pushed investors elsewhere.

With the belief that the S&P500 is near to topping out, any tumble in the index would likely take interest away from the ‘risk-on’ currencies and back to the dollar.

A slow day for economic announcements today, German business climate is the only impacting release at 09.00am this morning, with marginal increases expected.