Spain: Mind the Queue

The euro has rallied to about $1.3786. This is just beyond my initial target of $1.3770, which corresponds to a simple retracement objective of the euro's slide since the day after QEII was announced and the day before the stronger than expected US jobs report at the start of the month. Since the euro had been recovering since the middle of last week, some of the Irish developments were discounted. We thought the euro gains should and would be sold into, although others, especially in Europe, wanted a repeat of what happened in the spring with Greece. Resolution of the difficulty provided a systemic sigh of relief.

Market attention turns to Portugal. Irish and Spanish bonds are seeing smaller spreads against Germany. Not so for Portugal (and Greece). Since Spain is among Portugal's largest creditors, problems in Portugal will turn into Spanish problems.

Initial support now for the euro is seen near $1.3660 and then $1.3580. A break of the latter will put the euro bears back in the driver's seat.