European markets traded poorly yesterday, despite some healthy numbers out of Spain and Germany that, under normal circumstances, would result in decent performances for the single currency and local stock markets. The reason for yesterday’s sell off is probably a combination of uncertainty over what the ECB will say later in the week, concern that record high markets with the world still in a form of crisis mode isn’t healthy and still the talk about how long it will be before Greece fails to stick to its word.
Alexander Friedman, CEO of Swiss-based GAM Holding, told CNBC on Wednesday “If you look at the way the market looked at Greece, just a week or two ago, it said: ‘Ah, it’s no problem, right?’ But Greece isn’t solved,” he said. “We’ve got a fiscal compact that puts pressure on Europe….France is highly uncertain.”
Austria has an interesting situation unfolding, by where a region looks set to default on debts that it accumulated during a failed bank expansion program. The province of Corinthia is sitting on about €10bn of bond guarantees that the central government will not “waste another euro of taxpayer money on” which means that it is likely debt holders will get ‘bailed in’ for up to 50 cents on the euro under the European banking laws introduced last year to prevent taxpayer losses. This will be the first time the new laws have been applied.
Also close to default; Ukraine raised interest rates to 30% yesterday from an already very high 19.5%. The move is to try and shore up the currency, the Hryvnia, which has lost the best part of 80% of its value, moving from 8 to the Dollar to roughly 33 to the Dollar over the last twelve months. Credit default markets are showing that there is an increasingly high probability of a default this year and it doesn’t appear that the IMF is keen to pump more money in to try and prevent this.
EUR/USD Testing Key Support Level
The Euro is back where is was in January 23rd and testing the 1.11 level while trading below the Ichimoku cloud with the MACD indicator crossing below the signal line which all indicate a bearish sentiment in the market.
A break below this level could open doors for more drops towards a 12-year low at 1.08.
alternatively, if the pair (and the European investors alike) suddenly decide to go nuts and break above our pivot level at 1.15, followed by a confirmation above the 23% Fibonacci level at 1.17, we could safely say that the pair could retrace up towards 1.21 and 1.25 in extension.
So far though, we don’t see a reversal signal on the daily forex dance floor.