FX Headlines: Euro Slides in Thin Trading Conditions

The Euro slid slightly in thin trading conditions as traders differed to broader market trends, with concerns about the ability of Greece to remain solvent dominated headlines amid two holidays that closed equity markets and trading desks in the United Kingdom and the United States.

Fundamental Headlines

• Euro Weakens on Greek Debt Concerns - Bloomberg

• Italy is No Greece; Foreign Debt is Low: Unicredit CEO - CNBC

• No UK Rate Rise Until Recovery Secured, Bank Told - CNBC

• Germany to Scrap Nuclear Power by 2022 – Financial Times

• Yemen Unrest Spreads South - WSJ

EURUSD: The Euro continued to slide across the board, falling the most against the Dollar in illiquid trading conditions, as concerns over whether or not European governments will reach an accord on how to deal with potentially insolvent nations. The division is not just among policymakers in the European Union, but also at the state level. Greek Prime Minister George Papandreou announced that he would continue to press ahead with austerity measures even as his plan failed to secure support from opposition. While many officials have shrugged off default as a remote end result, there is at least the distinct possibility that there will be some kind of restructuring of the debt; a hard restructuring would entail a principal reduction, whereas a soft restructuring would call for an extension on the payment period of the loans. In either scenario, it appears that the Euro would take a battering amid concerns of contagion.

Taking a look at price action, the EUR/USD pair found support last week along its 100-SMA of 1.4022 before encountering resistance today at its 20-SMA of 1.4294, with additional resistance at 1.4352 at the 50-SMA. This zone represents an area of significant technical resistance, as the pair is struggling to close above its 23.6 Fibonacci extension on the June 7, 2010 to May 5, 2011 move. On a technical basis, the EUR/USD pair appears to be running out of steam to the downside, as the par has fallen significantly since peaking just below of the psychologically significant 1.5000 exchange rate on May 5. The RSI has rebounded a bit, though has fallen today, back to 42. The pair’s bearish momentum appears to be fading, as the MACD Histogram has tailed off recently, and though it still holds a bearish divergence, it is significantly less than where it had been on May 13, when it was -85; currently it is -16. A turn towards a EUR/USD pair long play is further supported by the daily Slow Stochastic oscillator, as the %K is now greater than the %K, at 39 and 24, respectively. Still, fundamental factors trump technical factors, and as long as the European sovereign debt crisis continues to rear its head, caution is advised for any long Euro-based pair plays.

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com