EUR/USD: 1.2560The Eur finished Friday on a soft tone but managed hold above 1.2500 going into the weekend, despite a brief break lower to 1.2495, thus knocking out the 1.25 barrier option that reputedly lay there.
Price action was once again rather choppy, but ultimately capped on the topside, particularly once it was revealed that Bankia in Spain have had to ask the Spanish government for funding to the tune of €19 bio, having made a loss of €2.979bn for 2011.
Also on Friday, Catalonia, the largest Spanish autonomous region, had to ask the Spanish government for help to pay its debts. Needless to say, Spanish (and Italian) bond yields headed sharply higher to 6.24% and the IBEX fell 1.1% to continue its steep downtrend. Things are looking very precarious in Spain, where the combination of disastrous real estate investments and an unemployment rate of 25%, suggest many years of hardship ahead. In addition to this, S+P downgraded another 3 Spanish banks to junk status . The market is beginning to ask questions as to whether Greece is the only nation that might need to leave the Euro and both Spain and Italy are firmly back in the markets firing line..
Back to Greece and further conflicting stories over the direction that it is going to take after the June 17 election kept the market on its toes on Friday, with little, likely to change in the coming couple of weeks. IMF chief, Christine Lagarde put Greece firmly in its place over the weekend, pointing out that while she wants Greece to stay in the Euro, in order to receive the bailout funds, the Greeks need to start playing by the rules and to start paying some tax. Adding to the pressure, former PM Papademos has kept up the pace by helpfully stating that Greece will run out of funds by the end of June if the outcome of the election goes the wrong way, resulting in the bail out funds being withheld. We will have to wait and see on that one, but it feels as though we are actually approaching the sharp end of the Greek issue.
It should actually be a quiet start to the week, barring any unexpected headlines, given the Whitsun holiday in Europe and Memorial Day in the United States.
Technically, 1.2500 still holds, and probably will do through Monday. We need to break below this, in order to progress to the 61.8% of 1.4246 to 1.2625 from 1.3486 at 1.2484.
In the bigger picture we could well be looking at a move back to 4 June low at 1.1875, and beyond there I am beginning to suspect we may be in for a greater move towards parity. The daily chart (below), looks to be a large, if somewhat messy head and shoulders and we look to be sitting right on the neckline. If this is correct, a break would then target 1.0350.
A technical case can even be made out for a move to well under parity, possibly even to the low 0.8000's area We've been there before! - Oct 2000 . Presumably a re-visit would be brought about by a complete collapse of confidence in the Euro, and we are a long way away from that yet. Such a move - were it to happen - would probably take several years to eventuate, so don't get too excited yet.
Nearer home, rallies to the topside should now meet good sellers on a return to 1.2620, which acted as support for so long,. The first Fibo resistance above this is at 1.2717 (23.6% of 1.3282/1.2545) and trendline resistance is currently at 1.2745.
The dailies still point heavily lower, although the short term charts remain oversold, and may result in a mild squeeze higher early in the week. It may be that we need some more consolidation at these levels before making the next test to the downside. Above 1.2620/30 though may see a bit more of a squeeze but this looks unlikely right now, given the holidays, so use 1.2490/1.2550 as a guide in what should be a quiet Monday.
NB The Euro, and the Risk Currencies have all opened a bit higher this morning on the back of a news headline that a Greek poll is showing the conservatives to be in the lead, ahead of the election. There is also news of a story of a secret EU rescue fund to take control of struggling banks - which is just about all of them, so it will need to be a decent sized fund!
