EUR/USD: 1.3123Risk aversion has returned with a vengeance today as the market appears to have suddenly woken up to the real possibility of a Greek default. There looks to be the increasing possibility that the PSI debt swap will fail to meet the Thursday deadline, which as we said on Sunday would most likely ensure the ratings agencies calling it an immediate default and would ensure Greece doesn't receive its bailout funds. European stock markets took a real beating with both the Dax and the CAC down around 3.5% and both Spanish and Italian long term yields have risen back above 5 %. The ongoing worries about the Chinese growth outlook have not helped either as commodities and the commodity bloc currencies have been marked sharply lower. If the turmoil in the EU does begin to get worse, the economic slowdown that follows will help to make a China slowdown a reality. The S+P is currently down around 1.5% which isn’t a bad result, although the VIX index has gapped sharply higher, currently at 20.7 and suggests that there may be more to come on the downside for equities.
The Euro, for its part, has broken the uptrend support and looks to be headed to the Fib support situated at 1.3055. Below here would target 1.3025, the low of both 1 and 6 February and then the 61.8% Fibo support at 1.2954. To the topside, the immediate resistance is at 1.3160. Above here 1.3200 and then 1.3280 will provide barriers but look unlikely to be visited in the next 24 hours.
The 4 hour charts are becoming overbought and for the next few hours are range trade is likely to take place while they unwind. 1.3100/1.3150 is likely to cover it – pre Europe- but rallies will see plenty of keen sellers looking for the next leg lower. The dailies are beginning to point increasingly towards 1.3000, although a little patience may be required.
Today sees German factory orders from the EU. From the US we get the ADP employment data
