Forex Traders Await Spanish Budget News

Spanish GDP is due out today with expectations of a 0.4% drop in the economic activity.  The release will be followed by a press conference with Marta Fernandez, Spain’s deputy budget minister, and Antonio Beteta, deputy minister for public administration, who will discuss the country’s economy, its budget, and what will be down to cut its deficit.  Underpinning Spain’s problems is massive unemployment, with the figure hitting 24.4% last month, and a banking sector whose balance sheets are deteorating.

Forex traders are expecting the government to create a “bad bank” system where bank assets are split and divided between the current bank and a new company.  In theory the idea works, and would save the Spanish government from needing to recapitalize the entire Bank holding company.  However, in reality there would be no public buyers of the new “bad banks” which would force Spain to take over these institutions which would put Spain’s sovereign bonds under fire.

Going into today’s figures, the EURUSD has been holding up relatively well as it is trading at 1.3255, near its morning highs.  However, when compared to other major currencies, the Euro continues to look terrible as the EURGBP is at 20 month lows, at just above 0.8100, while the EURJPY is at 106.20, down around 150 pips from a few days ago.