Eurozone Elections Cast Dark Shadow On Recovery

Elections in Greece and France mark the next two European countries to lose the controlling parties and heads of state that were apart of the bailouts all suggesting the political support and will towards the austerity plans along with the bailouts just isn’t there. This only renewed the fears about the shakiness in the EZ and exacerbated worries the zone might not hold.

The main driver was the Greek elections with the main parties failing which is now creating doubt they will maintain their memberhip in the program, either by a) leaving on their own will or b) not keeping the agreements of the bailout.

At the current rate, Greece will run out of cash by the end of June if it doesn’t get the government with the program to receive the next tranche.

Then France changed parties with Sarkozy losing the re-election bid, and considering he was Germany’s main ally, which could possibly cause a) France pulling their support for the continued bailout and b) a German-led austerity package which may not remain popular for long.

The result was global markets got hammered across the board with the Dow selling off 29pts or .23% and the FTSE losign 111.49pts or 1.92% on the day. Asian markets dropped over 2.5% across the Hang Sang and Nikkei.

Obviously the euro got punished gapping down on the open losing 125 pips and the 1.3000 handle before regaining the figure to close above it for the day. This was either China stepping in to defend the key level which they have admitted to in the past, but regardless, the pair looks vulnerable and we cannot imagine traders getting excited about holding Euros near-term.

It should be noted the economic calendar is a little light tomorrow so technical trading should dominate price action moves.

EUR/USD – Forms Pin Bar Off 1.3000 Figure

After getting hammered from the EZ elections last weekend, the EUR/USD formed a daily pin bar off the 1.3000 big figure telling us there is some downside support. We suspect this was either technically driven or Chinese buying to defend the level. Although the pair has sold off for 6 days in a row which may seem like a lot, the pair has not reached over-sold territory as the selling has not been overly impulsive. The 1.3000 floor has held price for a while as no close has happened below it since early January this year, which suggests likely manipulation at work as the pair should not have been contained in a virtual 400 pip range for over three months now.

If the intra-day price action pulls back towards 1.3000 and looks timid at best, then perhaps the level will hold short-term and offer a possible buy targeting 1.3100 and 1.3150 near-term. However, we will look to sell rallies, perhaps into the dynamic resistance above in the 20ema so watch for price action triggers here as the pair has formed a series of two LL’s (lower lows) suggesting the technical structure is attempting to turn over.