Why would the euro rise on a Spanish bailout request?

  • Because as a condition for buying bonds by the ECB and EFSF, Spain would need to formally request aid
  • EFSF and ECB bond buying would, in theory, cap Spanish borrowing costs and give them time to let macro economic policy adjustments to take place

But let’s not forget, much of the rise in the euro this month has been fueled by speculation of just such an event.

What the reaction to the news tells me is that the medium-term players who are short EUR/USD at nice levels are sick of giving back significant chunks of their gains and are headed for the exits.

Deutsche Bank reiterated a call for 1.2700 today and Morgan Stanley joined Goldman in the 1.30 camp today as well.

I’m with Deutsche. A retest of the late June high looks like it is in the cards. I would not dream of fading this move until we get quite close to that level.