Rajoy rejects bailout conditions

<p>During last week’s press conference, ECB head Mario Draghi announced that the ECB are prepared to buy government bonds providing states first ask for help […]</p>

During last week’s press conference, ECB head Mario Draghi announced that the ECB are prepared to buy government bonds providing states first ask for help from EU bailout funds. Yesterday, the head of the IMF Christine Lagarde pledged her support for the proposed bond buying scheme, however, it seems the scheme was not so well received elsewhere across Europe. Italy’s Monti stressed he would not accept extra conditions on bailout-seeking countries, and that he considered the existing conditions to be sufficient. It seems that the Spanish PM shares a similar view, and declared during a television interview that he will not accept outside conditions over a possible bailout, before adding that no decision had been made with regards to requesting a bailout.

A relatively quiet day on the data front today, with the bulk of economic figures and headlines due in the second half of the week. However, UK trade balance figures were released this morning at 9.30am and far exceeded market expectations, confirming a contraction in UK trade deficit of £3bn from -10.1bn to -7.1bn. We will also see the release of US and Canadian trade data this afternoon. The US figure is expected to reflect a widening in the nominal trade deficit to -44.2bn and in Canada, a reduction in trade deficit to -1.4bn.

Looking forward,  this week’s focus will be on both the German Constitutional Court ruling on ESM on Wednesday and of course on the FOMC press conference to be held this Thursday. Analysts expect the Fed to engage in its third round of Quantitative Easing following from Friday’s disappointing US job data. However, there are still strong arguments for why the Fed may hold off on QE3, for now at least, making Thursday’s decision a pivotal one.

The euro has proven its resilience in recent weeks and even printing three-month highs just this morning, despite two-year Spanish yields up 10BP this morning and an underperforming DAX. This may suggest that the market is short-covering however as long as the general expectation for further easing does not fade, we would expect to see the euro retain recent gains and find support around 1.2700-1.2750.

EUR/USD

Support 1.2745-1.2750 |  Resistance 1.2820 and 1.2835


AUD/USD

Support 1.0320 |  Resistance 1.0445


GBP/USD

Support 1.5955-1.6000 |  Resistance 1.6065

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