EUR/USD: 1.2830
The Euro has had a tough start to the week, falling to a 4 month low, with Greek politics well to the fore in driving direction and with the market wary of the meeting later today between Angela Merkel and the new French President Francois Hollande. EU Finance ministers are also meeting for what should be an interesting session of finger pointing.
Things were not a lot better on the economic front when EU industrial Production came in at -0.3% m/m and -2.2p% y/y in March, as compared with expectations of a 0.4pc rise m/m and a 1.2pc fall y/y; Awful numbers, which added to the general market malaise, and with the slowdown in China also a growing concern for future global growth.
Italy sold 3 year bonds at 3.91%, as opposed to 1.89%in April. The bid-to-cover ratio fell to 1.52 times versus 3.89 last month. Again a major concern; as with Spain, Italian yields are heading higher, on diminishing demand and today Spanish borrowing costs rose again – to 6.33% - with 10 Year yields moving to a record margin over German Bunds of 484 points(from 449). Spanish Credit Default Swaps rose to 540 bp. In the first signs of contagion, a Cyprus bank today asked for Government help to recapitalize due to its exposure to Greece. There will soon be a queue forming…..
Equity markets, needless to say got smashed, and have a long way to go – at least in Europe. The DAX was -1.94%, CAC -2.29%, Greece -5%, S+P -1.11%.
Technically the Euro has hit the major Fibo support at 1.2825 (76.4% of 1.2623/1.3485) before a current dead cat bounce that was not sustained and the Euro has closed NY on its lows. From here, I suspect we slow the decline a little unless we break below the bottom of the current channel which currently lies at 1.2805. The hourly charts are showing mild divergence and it could be that we squeeze towards 1.2900, possibly even 1.2925 (23.6% of 1.3282/1.2825), although it looks pretty doubtful right now. The 4 hourlies are a little oversold but the dailies are very definitely pointing to lower levels, so eventually I suspect we are going to see a test of the 13 Jan low at 1.2623. Interim support, below 1.2800, should be seen at around 1.2740 and progress could accelerate if things start getting ugly (uglier?!) in the EU.
It is a big data day today with EU/German/French/Italian GDP, ZEW Survey, US CPI, Retail Sales, Empire State Mfg Index and the NAHB housing market index all lying ahead.
Be nimble, but I suspect any strength will continue to meet good selling pressure.
For Asia, look to 1.2800/50 to provide a guide.
