The markets rose in the Asian session last night as it was revealed the China had recently injected a record amount of cash into the money markets and rumors about another round of Chinese stimulus starting making the rounds. As some of the European markets opened (2AM candle on an hourly chart) EUR/USD came off of 1.2900 and traded down/sideways until bouncing off of a low of 1.2830 when it was announced during the Spanish budget cut meeting that their cuts had "exceeded the ECB's expectations."
Why is this important? Because it essentially paves the way for them to request a sovereign bailout. The only reason the Spanish government hasn't already requested a bailout is because of the conditions that would come attached. Market participants inferred from the line: "exceeding the ECB's expectations with these cuts" that conditionality of a bailout was either no longer necessary or no longer a big deal.
Without listing the countless economic and political that Spain has, (Zerohedge does a nice job of that here) I'll simply say that they didn't fix any of their problems, and that this new round of austerity is going to generate more social unrest. They can pat themselves on the back for some quality jawboning. Their problems will continue to catch up with them and eventually their rising bond yields will force them to request a bailout from the ECB.
Looking Forward
It's possible that the optimism derived from speculation that Spain has temporarily fixed its problems could carry over into the Asian session and drive markets higher. However, tomorrow marks the last trading day of both the month and the quarter, so price action may be very volatile and moves much less predictable.
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