EUR/USD: 1.2930 Markets remain under severe pressure today as Greek and Spain continue to weigh heavily on risk sentiment. The Euro has been down to 1.2910 before recovering slightly, after one of the elected politicians declared that there was not enough support to form a government that opposes the EU/IMF bailout package. The recovery has been muted though, ahead of the decision later today on whether the EU/IMF will release the next tranche of bailout funds to Greece, which is expected to go ahead, despite the current confusion. The mandate to form a government has now been handed to the 3
rd placed party in the election which looks like going nowhere and so it seems as though another election is required in coming months. It all appears that Greece is heading rapidly towards exiting the Euro, which will raise the stakes enormously, given the contagion issues, but for now we are on hold…..
In Spain, bond yields have headed higher once again, to the wrong side of 6% after the government had to nationalise one of the indebted banks (Bankia) and reportedly told the others that it requires them to raise a further Eur35bio in provisions against bad loans. This comes on top of Eur 55 bio that the banks are already attempting to write down in real estate losses. Needless to say the Spanish stock market had a rough ride, closing down 2.8%. The DAX did ok, following good data and finished up 0.47%, while the CAC -0.2% and the S+P has just closed down 0.67%
So, things don't look very pretty for the Euro. It is struggling above the day’s lows, without any real sign of a bounce, hovering either side of the 61.8% support level at 1.2950 of the move from 1.2623/1.3485. While the overwhelming trend is lower, be wary of a bounce, driven by short covering. Today’s 1.2910 low becomes the immediate short term support, and below here 1.2868 (20 Jan low) should see buyers, ahead of the next Fibo level (76.4%) at 1.2825. On the topside 1.2995 is the first Fibo resistance (23.6% of 1.3283/1.2910), ahead of 1.3050 (38.2%) and 1.3078 – Chart gap.
The market is becoming increasingly nervous of the potential outcome of the European situation, having been very resilient and the moves look as though they could become increasingly violent in either direction as events unfold, so keep stops pretty tight. The hourly indicators still warn of the possibility of a bounce, although if seen there will be plenty of keen sellers waiting to take advantage of higher levels. Eventually 1.26 looks to be on the cards.
For the day ahead, we get the ECB Monthly Report and the US Trade Balance ad Jobless Claims
