Forex commentary EUR/USD January 16, 2012
Hello all. I hope everyone had a great weekend. In todays Eur/Usd commentary the buzz word is “downgrades”. Since S&P finally came out and made them real. I’m sure a lot of us are wondering what it means for the markets. Even though there were several countries on the list the most important I see are France who got one notch and Italy which got downgraded by two notches. In simple terms this means that the costs for these countries to borrow on the market will go up and of course the ECB will be stepping in to cap those costs but is limited in its actions for now. However that could change in the near future. In the short term I expect much of this has been priced into the markets for now but it would not surprise me in the least if we see the 1.2000 area on the Euro in the next few weeks. Time will tell.
There have also been reports that Germans are increasingly upset and are possibly weighing options on a Euro exit. This was in Reuters this morning.
“I fear the willingness of crisis countries to reform themselves is abating if, in the end, the European Central Bank steps in,” Linde’s chief executive Wolfgang Reitzle was quoted as saying.
“If we do not succeed in disciplining crisis countries, Germany needs to exit,” said Reitzle who was previously a board member at carmaker BMW and head of Jaguar and Land Rover.
Asking Germans to pay more than 50 percent taxes to help fund other euro zone countries will erode the will of the German electorate to support rescue measures, Reitzle said.
Plus German finance minister Schaeuble has been quoted several times saying.
- *SCHAUEBLE SAYS ECB AS LENDER OF LAST RESORT WOULDN’T CALM MKTS
- *SCHAEUBLE SAYS JOINT EURO REGION BOND SALES NOT A SOLUTION
Things are not looking pretty for the Euro right now. I wont even get into the fact that Barclays has done the math on how sustainable the Greek debt will be even if the PSI involvement reaches 100%. The wild card there is the possibility for the ECB to step in and take a hit on the Greek bonds it holds which could be a game changer in that respect. Another wait and see what the ECB does here again. Interesting days ahead for sure guys.
Looking at the charts I see the Euro has gapped down over the weekend and seems to be struggling to close it here in the Asian session so far. Considering the daily chart it has made a significant lower close and does look poised to break the final support level at the 1.2620 area but was supported there Friday and did manage to close above the daily lows from last week. I don’t expect much more of a retrace past the gap but is possible to reach up to 1.2700 before the more likely scenario kicks in and we see it tumble. There is an option expiry today at 1.2700. Once it does make the break down there isn’t any decent support until the 1.24 level but it will most likely hesitate at the 1.25 area.
The 15 minute chart has some resistance levels to break to make an attempt at a retrace. The gap down has cleared the 45 pip mark of the 90 pip range and is struggling there right now so it may not even close the gap. If it does manage to do so then I expect a test of the recent highs at the 1.2680 level and even get to 1.2700 considering the option expiry there today.