FXpro

In US trade, the euro gave up its advances of the previous day as initial euphoria over Spain’s €100bn recapitalisation ‘solution’ gave way to fears about the package’s size, its effectiveness and a series of subordination issues should it be sourced from the ESM.

In the end it could be said that logistical reality got in the way of a good headline. Overnight the euro gave up its previous day’s gains and continued to lose ground as the recapitalisation solution - Spain is being careful not to call it a ‘bailout’ - sparked concerns that the ESM's preferred creditor status could trigger a CDS event if this vehicle was used to fund the assistance package. Despite unnamed EU sources suggesting the funds could be channelled to Spain through the EFSF to avoid the subordination issue, traders’ concerns were not appeased.

As is so often the case, with Europe’s proposed ‘line of credit’ to Spain, the devil is in the detail. With the working of this aid package still to be finalised, the uncertainty it creates continue to have a negative effect on markets despite the good news inherent in the headline. What’s more, this weekend will see the much anticipated repeat Greek election. This event represents another landmark for Greece’s continuation in the eurozone and the fate of the euro itself. It promises to be another volatile week. Having ended yesterday’s Australian session around the 1.2645 level, the euro slumped to end the US session at 1.2482. Upon reopening for the Asian session the euro is essentially unchanged.