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Spain does not like to be relegated to a second role. And its absence from the financial headlines was indeed short-lived, as the country is once more the main protagonist in the euro tragicomedy, after the Standard & Poor's agency cut Spain's credit rating by two notches to BBB- with negative outlook, just one step above the 'junk' status.

… We've seen this film before

The rating cut is echoing in the domestic debt markets, as expected, with yields of the benchmark bond on the rise again, although still below the danger zone around 6.0%. Perception among investors takes into account that yields should trespass critical levels to bring in the inevitable: A call for help by President Mariano Rajoy, and with that, the markets would have removed one of the many stigmas. But late stubbornness (pride?) by the Spanish President and his 'buying-time' strategy are doing nothing but deepening the crisis in the bloc and delaying the moment to start healing the country's accounts.

And so the 'chasing-the-tail' game continues: The ECB can't do anything but sit on its hands and wait, because it needs Spain to ask for aid, but the country is not asking for help because markets are not in 'panic' mode yet. This dilemma also applies to the fixed income markets, as Senior Currency Strategist at Rabobank Jane Foley puts it,

investors will be asking themselves whether it is wise to sell Spanish bonds now, if in a matter of weeks the ECB's OMT scheme will be triggered and yields will come crashing down.

… From bonds to currencies

The same theory can be used in the euro space: Why would investors short the EUR when they know perfectly well that the ECB is anxiously waiting to start its OMT programme when the situation becomes unbearable? As J.Foley argues,

The implication of this is that dips in EUR/USD could remain relatively contained and potentially short-lived… We continue to pencil in pullbacks for EUR/USD on a 1 mth view, but medium-term we are forecasting a move to USD1.35. Near-term 200 day sma will act as support at EUR/USD1.2823.

Karen Jones, Head of FICC Technical Analysis at German lender Commerzbank, assesses that the cross has survived a sell off towards the MA200d at 1.2823, but she warns

Technical indicators have turned more negative and we look for rallies to remain tepid and for the 1.2763 3 month uptrend to come under attack.

… Friday is waiting

Governor M.Shirakawa would inaugurate the last trading day of the week with a speech, soon followed by the eurozone docket, consisting of France Current Account, Italian inflation figures and Industrial Production in the pan-European composite. Across the Atlantic, U.S. Producer Price index and the Reuters/Michigan Consumer Sentiment index are also expected.

Source: Euro And Its (S)Pain... Again