Euro Direction Hinges on Greece Austerity Vote – EUR USD Week of June 27, 2011 |
Fundamentally the biggest story this week for the EUR USD is the Greece Parliament vote on austerity measures on June 28. Although the Greek government has approved the austerity plan, there are opposing voices that could make Tuesday’s vote go down to the wire.
The EUR USD has been rangebound on the weekly chart since topping in early May at 1.4940 and bottoming in late May at 1.3969. This range has created a key retracement zone at 1.4454 to 1.4569. The recent short-term top at 1.4696 represented the market’s attempt to breakout over this retracement zone, however, rumors over the possibility the Greece austerity vote would fail, triggered the start of a hard break late last week.
The weekly swing chart indicates that the Euro is in an uptrend versus the U.S. Dollar. This trend is a combination of a favorable interest rate differential and positive expectations for a solution to the Greek sovereign debt crisis. The fact that the European Central Bank is raising its benchmark interest rate while the U.S. Federal Reserve is sitting on the sidelines should be enough to carry this currency pair higher, however, the lingering Euro Zone debt issues are the main reason why rallies have been muted.
Uncertainty over whether Greece will agree to austerity measures in order to get the Euro Zone and International Monetary Fund aid it needs to avoid default has been the biggest reason why the Euro has struggled recently. Although the main trend is up on the weekly chart, downside pressure has been building which threatens the existence of this uptrend. Based on the main swing chart, the May bottom at 1.3969 must hold or the main trend will turn down. A move through this level could trigger a rapid acceleration to the downside.
While rumors are swirling that the Greek Parliament is going to have a hard time passing the austerity resolution, the Euro is holding up nicely on the weekly chart. The first sign of developing weakness will be the penetration of a major uptrending Gann angle at 1.4076. In addition, a failure to hold the main bottom at 1.3969 is likely to mean another Gann angle at 1.3833 may be tested. The presence of both Gann angles indicate that although an acceleration to the downside is likely should support fail, the break could become labored at times when the Gann angles are tested.
Getting back to the key story of the week, passing the austerity measures should underpin the Euro, setting it up for a possible sharply higher move. A failure to pass the austerity measures could create chaos in the markets as this will take Greece once step closer to default. If this scenario develops, then look for the Euro to fall sharply as talk will begin to circulate that Greece is only the tip of the iceberg and that contagion is likely to mean the same situation will develop in other nations struggling to meet their sovereign debt obligations.
About the author: Forex Mansion Analyst - James Hyerczyk
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