Weekend risk is back on the table as Spain returns to the headlines.
Traders worry Socialists in Spain will be defeated in both local and regional elections and has created unease for euro bulls. A new government in Spain might be more inclined to reveal government financial inconsistencies and previous shortfalls in the Spanish budgets.
European regulators had previously built a wall around Spain while focusing on the indebted nations of Greece, Portugal, and Ireland. This could thrust Spain back into the limelight should a new local government expose excessive debts. A new government may also feel the need to enact new austerity measures in order to counter the higher debts in an attempt to win back market confidence for Spanish public finances.
Both Spanish and Greek bond spreads over their German counterparts have ballooned today and the euro has come off of its weekly highs at a significant technical level. Media reports this week have focused on the confrontation between Greece and the ECB following the declaration by the central bank to not accept Greek sovereign debt in return for liquidity measures should a restructuring take place.
A resumption of the European debt crisis should favor the rebound in the dollar going forward as many forex macro traders would view contagion into Spain as a new chapter in the saga.
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