Spanish PM 'EU Aid Not Imminent'

The market was upbeat overnight but we finished off highs with some disappointing comments from the head of Spain that a bailout was not imminent for his struggling country. The bulls are expecting Spain to formally request help and see this as an important step going forward to end the EU Debt Crisis. Looking ahead, ADP September Report forecast at 143k vs. 201k previously. Also ISM Services Forecast at 53.2 vs. 53.7 previously.

The Euro (EUR)
The EUR/USD popped Monday’s high and rallied to 1.2950. The outlook is for more gains but we are holding at current levels waiting for further clarification on the bailout timeline. The initial reaction to Spanish PM Rajoy was positive as he said his local governments had come together in a fiscal consolidation path. The market sold off on the "EU Aid not imminent" comments and no doubt we will have further clarification of what this means shortly.

The Sterling (GBP)
The pound was weaker than the euro and fell to back to day lows unwinding any rally during the day. Investors have changed their mood on the GBP/USD last week and we seem to be in the process of consolidation and pullback. Looking ahead, EU September PMI Services forecast at 46 vs. 46. UK September PMI Services forecast at 53 vs. 53.7 previously.

The Japanese Yen (JPY)
USD/JPY enjoyed gains as the Yen Crosses led by the EUR/JPY rallied. The AUD/JPY was the obviously exception but the rest of the crosses are well positioned after 2 days of grinding higher to start the week. USD/JPY is pushing into the Y78 levels.

Australian Dollar (AUD)
The AUD/USD was crushed lower for most of the day after the Central bank surprised most economists by cutting its interest rate to 3.25% vs. 3.5% previously. Citing China’s slowdown and ongoing global uncertainty and EU issues the RBA thought it prudent to cut with most now seeing them following up with a 0.25% cut in November. Looking ahead, August Trade Balance forecast at -700mn vs. -556mn previously.

Oil and Gold (XAU)
Gold was very quiet in a $10 range pivoting the $1780 level. The market may test for $1800 if US data misses. OIL/USD eased but not dramatically to $91.50.

Pairs to watch
EUR/USD: Making higher lows, will we test 1.3000?

AUD/USD: RBA to cut more? Aussie to fall against most currencies?

TECHNICAL COMMENTARY