EUR Daily News

Spanish Elections Add Uncertainty

Monday, 23 May 2011

Global investors have an aversion to uncertainty and this weekend's elections in Spain add that element. The incumbent Socialist Party failed to hold municipal and regional offices, suffering losses to the Popular Party by roughly 10 percentage points. The elections were accompanied by large street protests throughout the week leading up to the vote on Sunday.

The shift in power in Spain carries significant risks for euro bulls. Concerns that the incoming regional governments may hold back on possible austerity measures to reign in underfunded Spanish budgets, as well as uncover previously undeclared debts in local municipalities, thereby increasing the likelihood of a downgrade in the sovereign credit rating of Spain.

Until now European officials have succeeded in creating a fence around Spain as investors chose to focus on the underfunded debts of Greece, Ireland, and Portugal. However, Friday's trading had yields on Spanish sovereign debt rising, as was the case in Greek bonds. Further tensions are building in the Greek drama as the ECB stated a restructuring of Greek sovereign debt would cause the ECB to reject Greek bonds in return for liquidity provisions.

Momentum is beginning to shift against the euro not only versus the dollar but in the crosses as well. The EUR/CHF fell below its lowest level in 5-months while the EUR/GBP is testing the lower border of its recent consolidation pattern. A break of 0.8660 and the EUR/GBP could unravel to the 0.8530 level.

Current Time: 11/24 21:50 GMT
# Time $€£¥ Event Per. Prev. Fore. Act. Imp.
08:00EUR+ French Flash Manufacturing PMI57.557.055.0 3
08:00EUR+ French Flash Services PMI62.962.262.8 3
08:30EUR+ German Flash Manufacturing PMI62.061.258.24
08:30EUR+ German Flash Services PMI56.857.154.94
09:00EUR+ Flash Manufacturing PMI58.057.654.8 3
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