Based on the news breaking over the week-end, last week’s technical closing price reversal in the EUR USD could have been in anticipation of Greece’s projected budget shortfall of about 20 billion Euros ($26 billion). According to the German magazine Der Spiegel, preliminary findings by the so-called Troika, indicate that Greece’s budget shortfall to satisfy international conditions for emergency aid, almost double previous estimates.
This means that the country may not be able to receive the next tranche of financial aid from its international creditors if it cannot close its budget gap.
This problem should’ve been taken care of in March, but it looks like Euro Zone officials are saying that the EUR173 billion bailout plan is already badly off track. Upon further review it looks as if Greece has been waiting since June for a EUR31 billion payment from the Euro Zone bailout fund and the IMF. Without the money, the country’s recession is deepening while the time it is expected to pullout of the recession continues to be extended.
Greece may have to ask for its public creditors to forgive some of its debt, but if the report in Der Spiegel is correct then Greek Prime Minister Antonis Samaras may have already gone this route by asking its public creditors including the ECB numerous times to write off at least part of the country’s debts without getting an answer.
Another potential problem developing that could pressure the Euro is the dispute between Germany’s government and the European Commission over when to vote on whether to give Greece more financial aid. Since the two parties cannot agree on a date to settle the matter, investors may have to deal with elevated concerns over the next one to two months. This could be the catalyst behind another sell-off in the Euro.
The sticking point between the European Commission and the German government is the timing of the next stream of financial aid. The EC wants to have a decision at the European Council meeting in mid-October but Germany thinks a better time will be in November when more data will be available.
Technically, the EUR USD posted a weekly closing price reversal top last week. This chart pattern doesn’t mean a change in trend is taking place, but it often indicates the start of a minimum 50% retracement of the last rally. The last rally was 1.2042 to 1.3172. This makes the 50% level at 1.2607 the next likely downside target.
Before the market can reach this level, it has to break through a strong uptrending Gann angle at 1.2762. The initial test of this angle could trigger a technical bounce.
In summary, besides overbought conditions, last week’s rally may have been triggered by concerns about Greece. Like we’ve seen for several years now, traders are probably going to pare long positions or initiate fresh short positions in the Euro before waiting for the news to break. When dealing with Greece, traders believe “where there is smoke, there is fire”.
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