European Bond Woes and German Reluctance Drives Euro Down

The euro has been pushed to an 8 day low in early North American turnover as the peripheral bonds, led by Greece and Portugal continue to sell off. Their fiscal positions are more or less known. What remains the source of anxiety is the policy response. In particular German officials seem to be in no hurry move. It is not clear whether the lack of urgency applies to 2012 and beyond or the to current backstop, which some have suggested will need parliamentary approval.

Greece's Finance Minister is arguing that tapping the backstop facility is still not inevitable; that it depends on spreads. The market continues to drive the spreads out. Greece is facing a chunky maturity and interest rate payment in mid-May and that joint statement after the EU/ECB/IMF talks will likely be out just before. The risk is that European officials are operating on a different time frame than the markets. It will be increasingly difficult to European officials to get ahead of the curve and this is often necessary to get closure.

Euro support is seen in the $1.3340-60 area. A break can spur another quick cent drop. One support for the euro may come from the cross against sterling. The euro has tested support near GBP0.8680. Stops below there could send the euro down to GBP0.8650 where better support is thought to exist. The low for the year was set in late Jan near GBP0.8600.