Spain’s Debt Woes Pressure Euro

The Euro rose against the U.S. Dollar early in the trading session before running into resistance at 1.3126, slightly below the October 17 top at 1.3139. Heavy selling pressure accompanied by a news event turned sentiment negative, putting the EUR/USD in a position to post a daily closing price reversal top. This formation typically leads to the start of a 2 to 3 day break often equal to at least 50% of the previous rally. 

Fundamentally, news of a weak Spanish debt auction seems to have caught long traders by surprise as it shifted the focus from the Greek debt situation and the U.S. fiscal cliff back to the debt crisis. The issue with Spain was its inability to garner enough interest as planned in the debt auction. This news painted a negative picture for Spain which is likely to make a formal request for financial aid from other Euro Zone members. 

The stronger U.S. Dollar exerted its pressure on the British Pound, sending the GBP/USD lower. Additionally, the Sterling declined against the dollar after Chancellor of the Exchequer George Osborne’s budget statement included a forecast for lower growth. 

The possibility of a return to recession likely means the Bank of England will have to restart its asset buyback program. Essentially this is flooding the market with cash which will likely lead to a weaker currency. 

February Gold remained under pressure on Wednesday. Not only is the shift in sentiment from risk on to risk off driving the U.S. Dollar higher, but speculation that the U.S. will enter a recession in the first quarter if the U.S. fiscal cliff situation isn’t settled is also driving nervous investors into the safety of the dollar. Gold is likely to remain under pressure over the near-term if the dollar continues to strengthen. 

Concerns overU.S.fiscal cliff talks and the possibility of a weaker jobs report on Friday put pressure on crude oil. Although there appears to be a speculative bid in the market because of the possibility of problems in theMiddle East, the weak supply/demand situation is essentially the main driving force behind the market’s inability to rally above $90.00.