Is Spain Preparing for Full Sovereign Bailout Request?

The December Euro is up against the U.S. Dollar as talk of a Spanish bailout underpinned the market overnight and fueled a modest boost in demand for risky assets.

Without naming its sources, Reuters reported that Spain was prepared to ask for a full sovereign debt bailout as early as this weekend. Investors would welcome this news because it would allow the European Central Bank to initiate its bond purchasing program.

Daily December Euro Pattern, Price & Time Analysis

Daily December Euro Pattern, Price & Time Analysis

Once again, a problem with Germany seems to be standing in the way of progress as the Reuters’ report went on to say that the Germans were pressuring Spain to delay its request until political issues in Germany’s parliament could be worked out. It looks as if German officials would prefer to combine the Spanish aid package with requests from Cyprus and Greece rather than address them one at a time. The report has been dismissed by European officials, adding to the uncertainty hovering over the market at this time.

Technically, Monday’s reversal to the upside clearly demonstrates the confusion amongst investors. Early in the session, the main trend turned to down on the daily chart after a previous swing bottom at 1.2839 was violated, but quickly reversed to the upside later in the session. The lack of follow-through to the downside and the quick turnaround suggests that bearish traders are unwilling to sell weakness and short-traders are nervous.

The daily closing price reversal bottom formed on Monday typically leads to a 50% retracement of the last break. If this is the case then the next upside target is 1.2998. If upside momentum remains strong then look for the move to continue to 1.3042.

A downtrending Gann angle at 1.2963 stands in the way of a rally today, but once this is taken out stops could be hit all the way up to 1.2998. The main trend will turn back to up on a trade through 1.2971, one day after it turned to down.

The possibility of a two-sided trade suggests uncertainty and this plays well with the fundamental story today which highlights the waiting game going on in the European arena. Without clarity, Euro traders are not going to trade with conviction.

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