EU Morning Report- Optimism following Spanish bailout fades

The euro (EUR) dropped against the dollar to 1.2447 from 1.2646 as investors are worried about the upcoming election in Greece on Sunday June 17. Negative sentiment dominates the markets and world equities turned lower. The Greeks will be asked to decide among harsh austerity measures and the country’s stay in the eurozone. The initial optimism following Spain’s bailout deal quickly faded weighed by the Spanish sovereign bond market which reacted negatively to the announcement. Investors fear that the weekend bailout deal for Spanish banks may only work as a temporary solution for the country’s problematic banking sector.

The US dollar (USD) strengthened against a basket of currencies on a heightened risk aversion in the market. The greenback is supported by higher demand for the safe haven currency. But expectations the Federal Reserve could embark on a third round of quantitative easing may put the greenback under pressure. Versus the safe haven Japanese yen (JPY), the greenback jumped to 79.66 from 79.16 as investors remain cautious that the Bank of Japan may step in the markets to weaken the yen. Focus is now on the US Monthly Budget Statement.

The British Pound (GBP) fell against the dollar to 1.5461 from 1.5581 weighed by the debt problems in the eurozone. Eyes turn to today’s Industrial and Manufacturing Production figures that will show if the UK economy is recovering from its economic slowdown. Worse than expected figures may weigh further on the sterling on expectations that the Bank of England may need to expand its asset purchasing program in order to boost its economy.

Oil edged lower to 80.71 dollars a barrel from 86.47. Gold (XAU) dropped to 1581.87 dollars an ounce from 1604.91 and against the euro it slid to 1279.37 from 1273.19. Silver (XAG) edged higher to 28.28 dollars an ounce from 28.96. Stay in tune throughout the day with foreign exchange bullets!

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