Eur 1.2575
The perceived “best outcome” Greek election result did not take long to lose its legs as markets sagged again, after the Euro, for the 2nd week in a row, hit an early Asian high, at 1.2746, before turning lower as concerns over the ability for the new ruling party to live up to their promises came to the fore.
In Spain a report was issued, asserting that Spanish banks need to provision for bad debts in the housing market to the tune of Eur 150 bio. Following this, Spanish 10 year yields have hit a new EU era high of 7.28%. Thursday sees a Spanish bond auction, which currently does not look to be a pretty site and should ensure that the Euro remains pressured.
At the G20, various sound bites have been emanating from the protagonists. The most important of these, Angela Merkel has again reiterated her stance on Greece, by stating that there is no room for manoeuver on the previously agreed upon bailout package, and that she expects Greece to stick with the austerity plan. Beyond this nothing more than the usual platitudes have come from the G20 premiers, who, collectively want to see “strong sustainable growth and reduced unemployment” etc etc…
So once again we are back to the same old story and the Euro really does look as though it is going to be in trouble in weeks to come. Although a lot of the shorts have been taken back in the last few days, the market is still structurally very weighted to the downside, so while I expect the Euro to head lower, progress could be slow and choppy.
The charts, in the shorter term at least have turned sharply lower, and given that it has been more or less one way traffic today, from the higher open, the hourlies are now becoming somewhat oversold. The 4 hours are heading lower, although the dailies are yet troll over following the recovery from last week’s 1.2440 low. All up, this scenario looks to me as though conditions are going to remain choppy, with possibly a bit of a downside bias, but I don’t think that the markets should become too carried away on the downside ahead of the FOMC meeting later in the week. If the Fed does introduce some form of stimulus, we could see a sharp turnaround; with the dollar losing ground as risk markets make some headway. This would include the Euro, so best to remain pretty flexible.
With regard to the charts, 1.2535 is the first (rising trend line) support below todays 1.2556 low. Beneath this, 1.2485 looks to provide a minor level before a retreat towards 1.2400 and below, but this looks unlikely for now.
The topside now looks to 1.2590 as the first, minor resistance. Above here the 1.2667 pivot would again come into play, above which would suggest a return to today’s high of 1.2746. A break of this, although unlikely, sees a possible return to 1.2784 (50% of 1.3282/1.2286).
For today, use 1.2535/1.2635 as an initial guide.
Tue: G20, German ZEW Survey, US Housing Starts..
