Euro/dollar opens the Forex trading week with a gap once again. The pair opened around 1.29 and continues lower in early trade.
Last minute coalition negotiations aren’t successful so far in Greece. Angela Merkel gets another political blow from local elections and Spain’s banking moves seem insufficient. Updates.
The gap from last week was never closed. This was a bearish hint.
Grexit Getting Closer
EUR USD Sunday Gap – Click to Enlarge
After the third and last candidate to form a government, PASOK’s Evangelos Venizelos, returned his exploratory mandate to form a government, the president of the Hellenic Republic summoned all political leaders to try and form some kind of unity government one week after the elections, which resulted in a deadlock.
The sides reached no agreement: Mainstream parties ND and PASOK did not get support from the Democratic Left party, which conditioned the joining of a unity government by adding radical left SYRIZA on board.
SYRIZA’s leader, Alexis Tsipras, repeated his condition to bail out of the bailout. He received back wind by the recent polls, showing that his party will win a second round of elections.
Another month without a government in Greece and the higher chances of Greece leaving the euro-zone haunt the markets.
The terms Grexit and Grefault are becoming more mainstream. One seems to wonder if Greece is already printing drachmas in anticipation of a “bank holidayâ€. While a grexit might be good for Greece in the medium and long term, the damage to European banks and the contagion to much larger countries is very dangerous for the euro.
Austerity Backlash in Germany
Chancellor Angela Merkel’s CDU party was defeated once again, but this time in Germany’s biggest state: North Rhine Westphalia. The party emphasized the austerity measures and lost a lot of votes. The socialist SPD and the Green party were successful in this state, and already see a Red-Green coalition in the next general elections.
This isn’t good news for the markets and the euro, which wish to see a strive for balanced budgets. France’s Hollande will enter the Elysee Palace on Tuesday and will add to the austerity backlash, though his immediate flight to Berlin implicates that France and Germany will seek middle ground.
Spain Working on Plan C
After the Spanish government revealed new rules for the banks in order to restore confidence in the banking sector, it was revealed that the euro-zone’s fourth largest country is working on a “Plan C†if things deteriorate.
Is there a reason to think that the situation will deteriorate? Certainly. Growth estimates have been lowered once again, from a contraction of 1% to 1.8%. With an unemployment rate of 24.4%, Plan C seems real, even if its details are unknown.
EUR/USD
From 1.2916, EUR/USD opened at around 1.2902 and continues below 1.29. It reached a low of 1.2890, the lowest since January and still above the 1.2873 line. Significant esistance appears at 1.2960.
For more, see the Euro/dollar forecast.
