The market is still focusing on the developments in the European crisis, as the QE3 expectation has been diminished again. The Greenback began the week lower as the risk appetite surged on the Spanish bailout. Spain has now joined Greece, Ireland and Portugal as the fourth EU country to seek a bailout, and this time Spain has sought as much as 100 billion Euros to save its banking system. The ultimate figure will be finalized in the coming 2 weeks, and if the amount is on the large side it might mean the issue is much more serious than was thought. Furthermore, the bailout will count as a public debt, and is expected to increase Spain’s GDP to Debt ratio by 10%. Before the EU announces the amount of the bailout with the details of the borrowing cost, the focus will turn back to Greece as the election is going to be held this Sunday.
The market is still in the process of corrections from the oversold levels, and short-term bounces may continue in the week ahead. Next week the event risk is very high as we will see the Greek election, G20 summit, and European summit as well as the FOMC meeting. Investors are advised to trade for short terms only until the market resumes its downtrend in the medium– long term. We will pay attention to whether the EUR/USD can make a daily close above 1.2610, or AUD/USD can make a daily close above 1.0020; both results will indicate further rallies by 150-200 pips. Last but not least, the Japanese Yen continues to edge higher against the Dollar as it follows the movement of the US Treasury bonds. Although the possibility is low, investors should be cautious about Japan introducing further measures to intervene in the market during its meeting this Friday.