Euro falls as things go from bad to worse in Europe

The EUR/ USD has dropped significantly over the last two weeks with a mixture of news that is seriously concerning investors. After the review that was supposed to be conducted by the IMF and the ECB on Greece and the ability to service its current debt collapsed investors and traders took this as a signal that Greece is simply not in the position to be able to service its debt. The consensus seemed to be “why does Greece need more time?” If Greece has not been able to reign in its debt then there is a serious danger of the bailout funds not being released which is a  life line for the Greek financial system.

The second bailout package deal was supposed to be design to stem the contagion that seems set on spreading from country to country and over the last few months there has been worrying signs that this has not been the case. Italy and Spain did not avoid pressure from the markets recently and the ECB had to step in and buy up sovereign debt to lower the yields, however the ECB can not keep buying up bonds forever

It has recently been argued that the so called euro-bonds that would provide a solution to the troubled debt riddle zone. This super bond would be backed by all 17 single currency members and provide investors with a strong low risk investment as an alternative to individual county debt. However Germany will not agree to be part of this euro-bond whilst fiscal policy remains under the control of each member. From the recent disquiet in Greece it is unlikely be any means that Greece or any country will be willing to hand over their budget and spending freedom to Germany, but the recent court hearing has all but declared that if Germany is no longer prepared to pay for the mistake of others/ Surrendering fiscal sovereignty to Germany may be the only way of attaining German money.

The dollar seems to have gained strength as President Obama has pledged $447 billion of stimulus to get the US economy off of its knees. Any serious consideration by congress is likely to strengthen the dollar as investors become encourage by growth prospects.

If the ERU/ USD continues to fall then 1.3591, 1.3437 and 1.3338 provide significant support levels with which to mark likely bullish entries into the market.

If the EUR/ USD rallies in the coming days however then 1.3717, 1.3885 and 1.4227 are significant resistance levels at which sellers are likely to enter.