Volatility on the European market continues – IMF rescue package for Spain
The week ahead looks to highlight concerns underpinning the European sovereign debt situation. The main story still is that of volatility on the European market; the single currency’s future viability questioned by many traders worldwide.
Spain is becoming more and more of a concern
The concerns with Spain’s ability to manage a flailing economy have grown since the IMF rescue package was approved. Spanish yields have tipped well over seven percent, trading at 7.39% after hitting a European-era high of 7.56%. Attempting to mitigate further volatility, Spain has banned short selling for three months while Italy, feeling the effects as well has banned short selling financials for one week. There are now fears that Spain may indeed seek a full bailout, as regional governments have begun to express concern for their ability to manage internal debts. Spanish and Italian bank shares were the worst hit followed closely by their domestic indices; the Ibex at one point dropping nearly five percent.
Greece’s debt reduction
Furthermore, creditors are expected to begin auditing Greece’s progress on debt reduction. This audit determines whether the country is to be approved for an additional 31.5 billion euros. With political and social unease, a quickly shrinking economy and many investors questioning whether Greece will meet its August deadline, there has been speculation of true insolvency should their financial situation worsen.
EUR/USD at two-year low
Because of these protracted jitters, the euro has fallen to a two-year low against the US dollar to trade at $1.2082. Furthermore, it has fallen to an eleven-year low to the Japanese yen. Below $1.20, many online Forex traders have taken a bearish stance.
Euros long term survival
On the other hand, some Forex traders have taken the attitude that any position would have to be long due to such market volatility. This, of course, is under the assumption that the euro will remain in its current form. Indeed, the lack of real movement in the precious metals markets, traditional safe havens, illustrates that many believe the markets may incur still more losses in the near term. Nonetheless, taking a long position in the euro may indeed be one of the few hedges against what remains as the most volatile era for decades.