EUR/USD began the week with a slide that turned into a bigger fall. The political uncertainty in Spain is pushing Spanish yields higher. The drop in Spanish and Italian yields gave the euro reasons to rise. But now, as debt-crisis related worries return, the euro returns to its previous levels.
The pair fell back to the uptrend channel on the hourly chart, and now fell below this channel. More importantly, it lost the 1.3588 line that capped it during the previous week. All the lines can be seen on the chart.
According to Elliott Wave, this is a rather desired pullback before the next move.
No joy for Rajoy
The corruption case in Spain’s ruling party, PP, reached Prime Minister Mariano Rajoy. According to controversial documents, he was also involved in illegal transactions. The case is complicated and so far, Rajoy is deflecting calls for his resignation. However, his party is losing ground in opinion polls and public anger can continue mounting. At some point, he may be forced to resign.
Rajoy came into power at the end of 2011 with a landslide victory, but he has been under pressure ever since. Recently, the country saw better bond yields and less financial stress. However, Spain has a big toxic mix of issues: 26% unemployment rate, a long and deep recession, banking issues and regions who aspire for independence.
His only achievement, financial market calm (thanks to Draghi) is now fading as 10 year bond yields are getting closer to 5.5%. They were under 5% at one point.
EUR/USD is now trading at 1.3573, under the 1.3588 line that capped it last week. The next support line is 1.3550, followed by a much more important one: 1.3486 – which was the peak of 2012.
On the topside, 1.3620 offers some resistance, followed by 1.3690. For more, see the euro to dollar forecast.
