Forex Market Review – Euro falls back below $1.27, Spanish bond yields rise

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Euro bearishness resumes as markets are still focused on Greece and Spain. Accelerating the decline in the single currency today was a Spanish bond auction which resulted in higher yields due to concerns of the risk of contagion to such peripheral euro zone countries like Spain.  Spanish Prime Minister Mariano Rajoy warned on Wednesday that his government, struggling to reduce its budget deficit, could soon find it difficult to fund itself affordably on the bond market unless the pressure eases.

 

Meanwhile the ECB stopped providing liquidity operations to Greek banks due to their under capitalization. Greece goes back to the polls in mid-June after the failure of the May 6 elections to form a government, stoking fears of Greek exit from the euro

 

EURUSD fell to a four-month low of 1.2666, threatening the 2012 low of 1.2625.

EURJPY broke below key support of 102.00 and tumbled to a three-month low of 101.89

 

Sterling continues to be under pressure after yesterday’s dovish Bank of England quarterly inflation report increased the likelihood of more QE. GBPUSD dropped to a one-month low of 1.5825, down over 100 pips on the day.

 

USDJPY broke out of range and fell to 80.14 in late European trading as safe haven demand propped up the yen again.

 

USDCHF nudged higher to a new four-month high of 0.9480 in Europe on dollar strength due to safe haven flows to the global reserve currency. The greenback has gained over 4 percent against the Swiss franc so far this month.

 

USDCAD surged to 1.0156, the highest since January 23  as the commodity-linked Canadian dollar suffered amid risk aversion and fears of slowing global growth.