The ongoing rally in the euro suffered a modest check this morning, hurt by concerns that Spain might drag out bailout negotiations.
EUR/USD was able to push higher for a time yesterday, going back to the four-month highs it flirted with at the end of last week, but today the currency pair has dropped back somewhat. A Spanish bill auction saw yields drop, a reflection of investor confidence in the ECB and its power to move markets, but apparent foot-dragging by Madrid might prove to be a bigger issue for the time being.
The Draghi and Bernanke-induced sugar rush of the past two weeks appears to be on the wane for now, although more upward progress for the euro seems likely. But Spain continues to prove problematic, with the deputy prime minister saying that some questions would take time to answer. Madrid is definitely edging towards a rescue, but they are likely to make the process rather tortuous. Markets won’t like this kind of uncertainty, which would increase volatility.