EUR/USD: 1.2905The Euro ended Friday on a weak note, retreating against the US$ late in the session on news that the Greek Socialist Party had been unable to form a national unity government after holding eleventh-hour talks with the other parties. The news from Italy and Spain was no better. A rumour went round that the former is about to be downgraded, while the banking system in the latter seems on the verge of imploding altogether under the weight of disastrous real estate loans. The Spanish government has announced that it will be injecting public funds into the banks in order to prop them up.
Elsewhere, talk has begun about the possibility of LTRO3 in order to bail out the EU banking system again. It seems like throwing money into a black hole to me, but then, none of the EU politicians are looking at the issue from the same angle, and the nationalistic stance of the various leaders will continue to stand in the way of any chance of solving the crisis. Weekend political talks in Athens to resolve the situation have failed and it looks as though Greece is going to force the issue, with another election looking inevitable. This would see the possibility of a victory by the Left Wing, who want to tear the agreement up and start again, which Germany is not going to allow. It appears that the only option for Greece is to exit the Eurozone and the Euro, and given the current impasse it could happen sooner, rather than later. The Greek deputy PM said over the weekend that Greece has only 6 weeks’ worth of funding left. Germany, for one, won’t be falling over itself to release the next tranche of the bailout package, given the current set of circumstances.
French President, Hollande will meet with Angela Merkel in the coming week and that looks like being a pretty tense affair that will do little to help the Euro out, so the pressure inevitably looks likely to remain to the downside.
Merkel herself has suffered a blow over the weekend, with voters in Germany's biggest region, North Rhine-Westphalia, decisively rejecting her austerity policies; a defeat that will weaken her position on the European stage.
Technically, although 1.2900 once again held on Friday, (and has opened, Monday at 1.2900/10), it may come under pressure in Asia on Monday. Progress should be slow though. There are still plenty of bids on the way down – many of them from European banks repatriating overseas assets back into Euros, as they downsize offshore investment portfolios. Below 1.2900, 1.2868 (20 Jan low) should see buyers, ahead of the next Fibo level (76.4%) at 1.2825. Eventually it looks as though we should see a slow, choppy drift towards the 13 Jan low at 1.2623
On the topside, above 1.2960 minor trendline resistance, 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. With the 4 hour charts attempting to turn a little higher, we could see a mild squeeze into the resistance before heading lower once more, although it looks pretty doubtful to last for long, if at all.
It is a busy week for data, with the highlights being;
Mon: EU Industrial Production
Tues: EU/German/French/Italian GDP, ZEW Survey, US CPI, Retail Sales, Empire State Mfg Index, NAHB housing market index
Wed: EU CPI, US FOMC
Thur: German Public Holiday
Fri G8, German PPI
