Euro is sharply lower today as focus turned back to Greece again. There are fresh concern that the Eurozone aid package is against the spirit of the Maastricht Treaty which created the European Union and led to the creation Euro in the 90s. Economists claim that the treaty contains a clause preventing EU states from taking on the debt obligations of their neighbors. Joachim Starbatty, a leading economist and professor at Tuebingen University, said a suit might be filed at the Constitutional Court against the credit from euro states. Markets worry that Greece might in the end be not able to get the EUR 30b rescue from Eurozone members. The Greek 10 year bonds German bunds spread rose above 400bps again for the first time since the bailout package was announced over the weekend.
In addition, there are concern that bailout of Greece might eventually lead to break up of the Euro. An analyst report pointed out that Greece bailout and ECB's softer collateral stance set a bad bad precedent for other euro area member states and warned that the euro are might degenerates into a zone of fiscal profligacy, currency weakness and higher inflationary pressures over time. If that happens, countries like Germany might leave the euro and introduce a stronger currency.
Sterling failed to sustain earlier gain against dollar and was dragged down by Euro. Nevertheless, the pound is still firm in EUR/GBP. A poll from Daily Telegraph showed the deficit-hawk Conservative Party leads the Labour Party and could win an outright majority in the upcoming general election on May 6. 43% of votes questioned said they would vote Conservative, 31% Labour and 20% Liberal Democrat. The poll eased some concern on a hung parliament and raised hope that UK will be more determined and able to cut the budget deficit. However, data released today also showed UK consumer confidence plunged the most since July 2008 and dropped from 81 to 72 in March.
On the data front, initial jobless claims in US unexpected rose by 24k to 484k which continuing claims also rose by 73k to 4.64m. TIC capital flow rose to 47.1B in February. Empire State manufacturing index rose more than expected to 31.9 in April. Industrial production rose less than expected by 0.1% in March with capacity utilization rose to 73.2%.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.3605; (P) 1.3642 (R1) 1.3689; More.
EUR/USD drops sharply today and touches 4 hours 55 EMA as expected. Nevertheless, note that rise from 1.3282 is still in favor to continue as long as 1.3490 minor support holds. Current price actions from 1.3691 are treated as pull back only. Break of 1.3691 will target 1.3817 or above to complete the rebound from 1.3266. However, note that break of 1.3490 support will suggest that rise from 1.3282 has completed and will flip intraday bias back to the downside for 1.3266/3282 support zone.
In the bigger picture, EUR/USD's fall from 1.5143 has possibly completed the five wave impulsive sequence already (1.4217, 1.4578, 1.3443, 1.3817, 1.3266) on bullish convergence conditions in daily MACD and RSI. Some lengthier consolidation would now be seen with risk of stronger rebound. Nevertheless, we'd expect upside to be limited by 38.2% retracement of 1.5143 to 1.3266 at 1.3983, which is close to 1.4 psychological level, and bring down trend resumption. The overall bearish outlook remains unchanged. That is, the three wave consolidation from 2008 low of 1.2329 has completed at 1.5143 already and fall from there is resuming whole down trend from 2008 high of 1.6039. Such decline is expected to break through 1.2329 low eventually.