EUR/USD: Spanish Political Backlash Deteriorates the Euro

Continuing turmoil in Spain is seen to hamper the Euro’s stride alongside the US dollar today. After having fallen in the previous four months, the National Bank of Belgium’s business barometer reached a gain in July, reversing a marked drop in June. Compared to the previous month, the economic climate has improved in all branches of activity surveyed.

In the manufacturing industry, business improvement was moderate. In the business-related services, confidence strengthened in a more pronounced way: the entrepreneurs assessed the level of activity more positively, and they are also optimistic about demand forecasts. In the building industry, the economic climate has improved for the second time in a row. The evolution of the order book was less negative, equipment was more intensive used and the demand outlook improved. As for the retailers, they keep on being increasingly optimistic, as it was in general the case since the trough reached in March. As a result, the European currency climbed by 88 pips opposing its American complement.

However, due to a weakening of economic activity in Q2, the European economy is deemed to a bearish market. In addition, the political tubulence in the EU, particularly in Spain sees volatility in the markets. The regional leader of Asturias in Spain has become the country’s first major figure to call for a radical change of strategy and exit from the Euro, unless monetary union is fundamentally reformed. Francisco Alvarez Cascos, the region’s president and former secretary-general of Spain’s ruling party, accused premier Mariano Rajoy of humiliating the nation by touring Europe with a begging bowl.

Mr. Cascos said the government is utterly incompetent, but warned that the deeper crisis is a perverse monetary system where capital flight from countries in distress is funding creditor states at zero rates. The downward economic slide in Spain is accelerating, with all-conquering Telefonica forced to cancel its dividend and slash board pay by 30 percent. In a worrying twist, top companies in Spain and Italy have seen a surge in borrowing costs over the past two days. Yields on five-year Telefonica debt have risen 60 basis points. Telecom Italia has jumped 40 points, while Fiat bonds have crashed over the past two weeks. With the failed hopes of the Spanish to prod the Eurozone’s Latin bloc to use its majority power on the ECB council more aggressively to force a policy change, the EURUSD pair is likely anticipated to drop.


Article by AlgosysFx Forex Trading Solutions