By: Christopher Lewis
The EUR/USD continued to be the focal point of the Forex world on Thursday as the markets try to get an understanding of what is going on in the European Union. The announcement of a deal has also been strangely accompanied by a severe lack of details, and the community seems far from being overly impressed by whatever it is that Athens thinks it has come up with.
The initial reaction was bullish, but only mildly so. The fact is that the “good news” will have already been priced into this market as it had no real reason to rise otherwise. The fact is that the Euro has gained in value even as there have only been hopes of a deal. Once the actual deal has been put together – there isn’t much left to celebrate. Also, the fact that there was only a 3 or 4 sentence comment by the Greek PM makes me wonder if this will actually be agreed upon by the Troika.
The truth about the debt crisis is that there are several other shoes to fall, and the “fixing” of the issues in Athens will only be a good start. (This assumes that it has been fixed…) There are other worries in Portugal, Spain, and Italy. As a side note, there are already strikes being planned in Athens, and there is also a comment from a large union leader calling for “social unrest”. The Greeks have a long history of this kind of thing, and also hold the honor of being one of the most defaulting nations on earth over the last century or so. So who believes this turns out any differently? There are elections in April, and I would be stunned if the same people that have put forth draconian measures against the population are still in office. Populism can and will arise, and it seems that defaulting is something that is very likely, even if it isn’t this month.
Unimpressed
If I had to sum up the reaction to the “good news” today, unimpressed would probably be the first word that comes to mind. While there is a certain amount of noise from 1.3250 to 1.35, one would have thought that the market would have reacted much stronger than it did when the announcement came out. Perhaps it is a matter of “The boy who cried wolf”, and the markets simply don’t believe it. It could also be the fact that there are going to be more questions going forward. Either way, even if you told me that the 1.35 was going to be hit – the lack of enthusiasm would have me concerned.
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Because of this, I am looking for weakness to sell, but I think we could grind a bit higher – perhaps even as far as 1.35 before we see the resistive candle. Late in the day, the Germans suggested that the information they had about the agreement in Athens wasn’t strong enough to get the next tranche of bailout money – so this pair is probably best left alone at this point. On the technical side – the 100 day EMA is right at the current level, and I see a general lack of bullishness at this point, however – headlines could change all of that. In general, I think this looks bad for the bulls so far, but we are at a “no man’s land” kind of point in the chart which will keep me away from this pair for the next day or two.