Spain Gives Commanding Majority to Conservative Faction, ITFX Expects Traders Will Sit on the Sidelines this Holiday Season

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Following the lead of Italy and Greece, Spain is the latest member of the EU whose population has expressed frustration with dismal economic outlooks by switching governments. The Euro has hovered just below its close from last week and does not seem to be able to establish a trend in either direction.The positive correlation that typically exists between the EUR/USD and the DJIA does not seem to be in effect at this time. A major drop in US equity values has not been mirrored by the EUR/USD. This type of divergence, especially in light of the upcoming US holiday season, where trading volume is generally low, has many Forex ECN traders sitting on the sidelines as casual observers and not as active participants.

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ITFX, Forex currency exchange firm, reports that Spanish voters, frustrated by the over 20% jobless rate and nonexistent economic growth, showed the door to the Socialist party and gave a commanding majority to the Conservative faction.

Prime Minister-elect Mariano Rajoy immediately sought to keep the expectations of the jubilant Spaniards realistic, according to Reuters. He is quoted as saying, “It is no secret to anyone that we are going to rule in the most delicate circumstances Spain has faced in 30 years. For me, there will be no enemies but unemployment, the deficit, excessive debt, economic stagnation and anything else that keeps our country in these critical circumstances.”

Those are formidable enemies indeed. Vanquishing any one of them, let alone all five, may require measures that will be difficult to sell in a country where a long history of socialistic administrations has turned a blind eye to economic reality.

Over 90% of all Spanish companies are classified as small or medium in size. Rajoy promised tax cuts for these companies, but did not indicate where the reduced revenues from these sources would be recovered, nor did he offer anything specific regarding the unemployment crisis, as explained by a recent Reuters report.

Spain’s situation represents a microcosm of the scenario that confronts the entire EU as well as the majority of the world’s developed economies. Too many entitlements, such as various social services and in the case of Spain, state-paid health care and education, exceed the revenues generated by a populace whose entrepreneurial productivity is constantly hampered by legislation and regulation that supplies little or no incentive to innovation.

The Euro common currency has been under attack for months now, but is making a valiant attempt to remain solvent.

The first 24 hours of the current trading week have seen attempts to push the euro lower versus other major currencies fail to establish new lows compared to last week, but conversely, euro values have only briefly tested last week’s close.

Euro prices, compared to the dollar have remained for the most part below the current open of 1.3525 and the half-way point between the high of 1.3840 and the overnight low of 1.3430.

Currently hovering around an important psychological level of 1.3500, the failure of the EUR/USD to make new lows, particularly when the DJIA has spent the majority of the day at close to a 300 point decline, is something to which online Forex traders are unaccustomed.

Typically, FX trading experts expect a decline in the Dow to match a decline in the euro against the dollar, as traders around the world seek the stability represented by the dollar. One possible explanation is that last week, the EUR/USD tested its open for the year, but failed to break that level when value seeking buyers got involved in sufficient strength to prevent any further decline by the euro.

There may be other reasons as well, chief of these be investors focus on the political situation in the United States, where all indications are that an agreement by the so-called Super committee has failed to achieve a compromise regarding deficit reduction and new revenue sources in the form of a tax increase.

Whatever the reason or reasons, a historical perspective shows that this time of year is often lacking in clear trends and sufficient trading volume to supply price volatility.

These are the type of trading conditions where a Forex ECN broker like Invest Tech FX, with tight, fixed spreads and comprehensive technical and fundamental analytical tools can make the difference between consistently profitable trades or having variable spread market maker brokers receive all the benefits of FX trading activity.

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