Markets On Edge As Stress Test Shows Spain Requires Further Assistance

The results of the Spanish banking sector stress test a week ago showed that the country may require between EUR 16b to 25b from the EFSF in the case of a central scenario and from EUR 51b to EUR 62b in the case of stronger pressure in an adverse scenario. Moody's lowered the credit rating of 28 Spanish banks in the beginning of the week, prompting EU finance ministers to come out yesterday following a teleconference to say that this sector is in need of aid between EUR 51b to 62b before the waited EU Summit today which is expected to show no hope for eurobonds issuance with the current German objection.

The EU finance ministers have seen this assistance to Spain a priority for lowering the pressure of the crisis and calming down the markets. Bailing out the Spain's banking sector which negatively affected EU financial markets recently and drove up the bond yields of the peripheral countries to its highest levels since the beginning of this year after the working of the first LTRO in last December.

The risks have looked looming around the funding countries this week, too, by Egan-Jones's decision to lower the credit rating of Germany to A+ from –AA because of the risks of this crisis which threaten its banking sector. Its holding of bonds of these ailing countries along with German contributions in shoring up these countries which affect negatively on its creditability as well by an indirect way while this assistance is still looking convincing in Germany for supporting the European financial markets in the union and the German banking sector.

The single currency spent most of its trading times yesterday below 1.25 level but it is still near it without breaking its previous supporting level at 1.2408. In the case of falling further and breaking this level, the pair can meet another supporting point at 1.2408 which can be followed by 1.2357 before 1.2286 which could hold the pair decent after the US nonfarm payrolls release of May. The breaking of it can lead again to 1.2151 which its breaking can open the way for 1.1876 again whereas the pair has rebounded forming its bottom on 7th of June, 2010 which drove the pair later to reach 1.4939 on 4th of May 2011.

The pair has managed to ease back again while the pair way up can be met by resisting level at level at 1.2748 again. However, the pair failed to continue rising versus the greenback in the beginning of last week and crossing above it can be met by a higher resistance at 1.2822 before the psychological level at 1.30 which its breaking can open the way for more resisting levels at 1.3063, 1.3180 and this can be followed by 1.3281 which its breaking can open the way to 1.3384 again before 1.3489 whereas it has formed its recent top and in the case of breaking 1.3489.