David Smith at economicsuk.com

The EUR100 billion loan to Spain, which Gerry mentions below, and the Chinese economic data are likely to lead to some quite heavy short-covering on Monday morning according to interbank sources.

China’s industrial production rose by 9.6%, which was slightly below early forecasts but much better than some of the more dire predictions which emerged after the Chinese rate cut. Retail sales also rose by 13.8%. From a global perspective, the data was relatively downbeat but the domestic economy seems to be taking up some slack.

There are two ways of looking at the Spanish loan; one, that it shows the terrible state of the banking sector (which we knew already) or secondly, that the authorities are finally getting a solution in place. There is of course also the big question of where this money is to magically come from?

Interbank reports, which have the added advantage of knowing where the stop-loss orders are, tip that we will see short-covering on Monday morning as there are plenty of stop-loss buy orders above the market. The first level they note in EUR/USD is at 1.2540 with of course some very large stops above 1.2630, should it really take off. The AUD/USD might also be volatile with stops reported above .9955 and again above 1.0000 (although Sovereign sellers were noted late last week near parity).

‘After a 2 1/2 hour conference call of the 17 finance ministers, which several sources described as heated, the Eurogroup and Madrid said the amount of the bailout would be sufficiently large to banish any doubts.’

‘Juncker’s spokesman said the finance ministers would hold a conference call at 4.00 pm Brussels time (1400 GMT)’