Posted: 15 Jun 2010 01:06 AM PDT

The European leaders can deny a multi-billion rescue package for Spain, but the wheels are already in motion – foreign banks refuse lending money to Spanish banks, and the government may be unable to supply the liquidity. EUR/USD is also in a downwards motion, ending the short lived party. Also the ZEW Economic Sentiment was terrible – showing that German investors are very worried.

Talks between European leaders will be held on Thursday in Brussels. A report towards this event suggested that Spain will ask for 100 billion euros of aid money in order to refinance its debt. The rumor was denied in Brussels and in Madrid. But Spanish Treasury Secretary Carlos Ocana didn’t deny that there were serious problems:

The Spaniards admitted that European banks were refusing to lend money to the smaller Spanish savings banks, the “Cajas”. This lack of confidence sends us back to the days of the credit crunch.

Greek default getting closer - EUR/USD begins falling

The common currency was recovering last week, and continued rising this week as well, approaching the “Lehman levels”, the 1.2330 resistance line. This party was short lived. The fall began with Moody’s downgrade of Greece. Greek bonds are now junk according to Moody’s. This sent EUR/USD under 1.23.

While the Greek troubles are with us for quite a while, attention has left Greece since the 110 billion euro aid package was promised. This four-notch downgrade is problematic, as it’s the first one after the bailout package was approved.

Moody’s has no confidence that Greece can pay its debt, even with the huge EU and IMF aid.

Big Spanish fears Send Euro lower

The fall escalated with the troubles in Spain, the fourth largest economy in the Euro-zone, which is responsible for 12% of GDP. The credit crunch in Spain sent EUR/USD down to 1.2190 at the time of writing, after bouncing off the 1.2150 support line.

Below 1.2150, the next line is the round number of 1.20, followed by the year-to-date low of 1.1876.

Fear of Dictatorship

The continent faces a double dip recession, that could slow down the whole world. And now there’s even new fear. According to European Commission Jose Manuel Barroso, Greece, Spain and Portugal could fall back into dictatorships. Barroso laid out this apocalyptic scenario at a closed meeting last week.

This scenario looks far from reality at the moment, but when it comes from such a high ranking European official, the words also weigh on the Euro.

Germans investors are worried

Update 9:30 GMT: The highly regarded ZEW Economic survey was a huge disappointment. The survey of 350 German institutional investors and analysts dropped from 45.8 to 28.7 points. Early expectations stood on a rise to 48.7 points.

These are the lowest levels since April 2009 – the lowest in 14 months. This index already reached 57.7 points in September 2009. A very strong drop was also reported in the all-European figure – that fell from 37.6 to 18.8, also falling short of expectations for a rise.

It seems that there’s a serious issue of trust in the old continent. Is a new snowball of credit crunch beginning to form?

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Fundamental Overview – Market Movers This Week – 6/14/2010

Posted: 14 Jun 2010 03:40 PM PDT

Guest post by ForexTraders.com

The Dollar gave back some of its extensive gains made over the past few weeks last week as Eurozone debt problems seem to be affecting the market less and European bond markets stabilize. Nevertheless, the Dollar was unchanged against the Yen, despite new Prime Minister Naoto Kan warning the Japanese Parliament about a possible default on Japanese borrowing if public spending was not controlled.

Furthermore, the commodities currencies gained considerably against the U.S. Dollar last week, as crude oil gained $6 a barrel and gold made another all time record high, reaching $1,251 an ounce on Tuesday.

The forex market's main movers this week were without a doubt led by the Australian Dollar which rose 3.3% and the New Zealand Dollar which gained 3% versus the Greenback over the week. Nevertheless, the Canadian Dollar was not far behind, posting a 2.6% weekly rise.

While the commodities currencies were the highlight of the week, news out of Britain regarding an Emergency Budget announcement to stave off possible U.K. debt downgrades, as well as the Euro's recovery off of new recent lows, were also noteworthy

Australian Dollar Rallies on Growing China Demand

The Australian Dollar benefited handsomely from the combination of renewed risk appetite in the currency markets together with China's announcement that its exports had risen 48.5% for the month of May with an equally impressive number for imports of 48.3%. China is Australia's biggest customer, importing a large amount of Australian exports.

On Wednesday, RBA Governor Mark Stevens stated that the effects of the European debt crisis to the Australian economy would be limited because exports to the Eurozone countries were "quite small" and account for only 5% of Australian exports.

Other factors which contributed to the rally in AUDUSD last week were ANZ Job Advertisements out on Monday showed an increase of 4.3% month on month which indicates employers are confident despite the recent rate hikes made by the RBA.

In addition, the Australian Unemployment Rate, which decreased to 5.2% adding 26.9K new jobs to the Australian economy in the month of May, both numbers beat the consensus of 5.4% for Unemployment and 20.1K new jobs.

The Reserve Bank of New Zealand Raises Rates

The New Zealand Dollar also gained considerably last week, after having been battered by the market over the past few weeks. While the week started off with the currency making a new recent low of 0.6571 on Tuesday, the Kiwi came back with a sharp rally on Wednesday after the Reserve Bank of New Zealand raised their benchmark Official Cash Rate by 25 basis points from 2.5% to 2.75%. This was the first time the central bank had hiked rates since July of 2007.

The RNBZ rate hike was not entirely unexpected, although many observers apparently considered it a strong possibility that the central bank would leave rates unchanged. In a statement made accompanying the rate decision announcement, the RBNZ wrote, "stronger world activity, particularly in Asia-Pacific economies, is forecast to increase demand for New Zealand's exports." The statement went on to say that, "Strong growth in Asia is also likely to continue to provide support for mineral commodity prices." The statement cited the Asian market as the more vibrant in the global economy.

Also on Wednesday, the New Zealand Overseas Trade Index showed a much better than expected increase of 5.9% quarter on quarter, versus a market consensus expectation of only a 1.9% increase.

The Kiwi continued strengthening on this news and closed a couple of pips off of its weekly high at 0.6907, up 3% for the week against the U.S. Dollar. This made NZDUSD the biggest mover among the most watched currency pairs in percentage terms last week.

U.K. Emergency Budget Cuts May Come Too Little Too Late

The announcement on Monday by U.K. Chancellor of the Exchequer David Osborne that the new Conservative-Liberal Democrat government would present an Emergency Budget on June 22^nd was seen as a welcome move by the markets for the beleaguered Pound Sterling.

Interestingly, the news came only a day before rating agency Fitch published a report on how the United Kingdom needed to cut public spending significantly or risk possible downgrade on its currently AAA-rated debt. Sterling sold off initially on this news, but then managed to make back its losses into the weekly close, ending up more or less unchanged versus the U.S. Dollar.

According to Chancellor Osborne, the planned spending cuts may include lowering tax credits, in addition to making major cuts in Britain's benefits and welfare programs. Many of these spending programs have remained untouched by previous budgetary tightening cycles, and include disability pay, the child benefit, unemployment compensation, and pensions for public sector employees.

Nevertheless, concerns remain that the new U.K. government will not have the nerve to make the needed spending reductions to protect the country's coveted triple A credit rating over the long term. Of course, time will tell, but this Emergency Budget may well cut too little too late to save the U.K. from a debt crisis similar to what Greece has recently been going through.

Weekly Recap and Outlook for the U.S. Financial Markets and Dollar – 6/14/2010

The U.S. Dollar corrected weeks of gains against most global currencies, falling against the Euro and down especially against the commodities dollars of Australian, New Zealand and Canada. The Greenback also remained more or less unchanged versus the Japanese Yen and the Pound Sterling.

The pause in the U.S. Dollar's recent rise last week was widely attributed to the return of some risk appetite to the currency markets. Also, the European debt crisis took something of a breather after Germany's Constitutional Court voted to allow Germany to contribute to the $1 trillion European rescue package. Read full report

Weekly Recap and Outlook for EURUSD – 6/14/2010

EURUSD finally gained ground last week after declining for several weeks due to sovereign debt worries in some of its member states. The pair reversed its downtrend, temporarily at least, as risk appetite finally returned to the currency markets.

EURUSD began the week by trading off of its weekly low of 1.1875 set on Monday as German Factory Orders came in at an impressive 2.8% increase versus the consensus of a decline of -0.1%. Read full report

Weekly Recap and Outlook for GBPUSD – 6/14/2010

GBPUSD started last week by trading higher on Monday as the U.K. Chancellor George Osborne announced that the new Conservative-Liberal Democrat coalition government would release an Emergency Budget on June 22^nd. According to Osborne, the Emergency Budget will contain significant measures to cut down the current high level of public spending in Britain.

Monday also had the U.K. BRC Retail Sales Monitor, which showed a gain of 0.8% year on year versus a previous reading of a loss of -2.3%. Read full report

Weekly Recap and Outlook for AUDUSD – 6/14/2010

AUDUSD gained considerable ground last week, buoyed by a renewed appetite for risk in the currency markets.

The rate started the week by selling off, despite news that ANZ Job Advertisements increased by 4.3% month on month, considerably better than the previous reading of a -1.2% decline. That number provides a good indication that Australian employers continue to be optimistic despite the recent RBA interest rate increases and the debt issues in Europe. Read full report

Weekly Recap and Outlook for NZDUSD – 6/14/2010

NZDUSD gained considerable ground last week as risk appetite returned to the currency markets, at least for now. The week began calmly with a bank holiday for New Zealand on Monday.

The rate then sold off to make its weekly low of 0.6571 on Tuesday, as the New Zealand stock market dropped 2% in the first fifteen minutes of trading.

Nevertheless, the rate recovered and then rallied sharply on Wednesday as the RBNZ raised its benchmark Official Cash Rate by 0.25 bps to 2.75% from 2.50%. This was the first RNBZ rate hike in New Zealand since July of 2007. Read full report

Weekly Recap and Outlook for USDJPY – 6/14/2010

USDJPY was confined to a narrow range last week, trading off of its weekly high of 92.07 made on Monday as the Japanese Current Account came out at 1.38T versus expectations of 1.42T. Also Monday, the Japanese M2 Money Stock showed an expansion of 3.1% year on year, versus an expected 2.8% rise.

USDJPY went on to make its weekly low on Tuesday, despite Japanese Leading Indicators coming out at a slightly disappointing 101.7% versus an expected number of 102.8%, along with a minor downward revision to the previous number to 101.9% from 102.8%. Tuesday also had Japanese Core Machinery Orders which came out at an impressive 4.0% month on month, versus an expected 1.2% increase. Read full report

Weekly Recap and Outlook for USDCAD – 6/14/2010

USDCAD started off the week by trading off from its weekly high of 1.0678 seen on Monday after BOC Governor Mark Carney, in a speech to securities analysts, made statements to the effect that reforms were needed to fix the global financial system.

The rate then started selling off further on Tuesday, as the Loonie gained more ground against the Greenback. This renewed Loonie strength came despite disappointing Canadian Housing Starts which came out at 189K, versus the consensus of 203K. Read full report

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Forex Crunch Spain’s Credit Freeze Weighs on Euro

Forex Crunch Spain’s Credit Freeze Weighs on Euro

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