Euro Drops, Dollar Flat

There is one feature of the foreign exchange market and that is the euro's failure at the $1.4350 resistance area, that corresponds to the 50-day moving average and the high from last Friday when the euro posted an outside down day.  After spending the quiet Asian session on firm footing, as soon as Europe came in they sold it off. 

The cause seems primarily technical, but tensions in Europe are running high.  It is not just that Greek yields have risen considerably (18 bp in the 2 year and 50 bp in the 10-year), but Spanish bonds are are also under pressure as are its CDS prices.  The concern, as I have noted before, is that the weekend election will shift power in many regional governments and the new governments are likely to find debt and deficit levels higher than the outgoing government has 'fessed up to.  Regional governments enjoy a high degree of autonomy and are responsible for much of the spending. 

The euro has sold off across the board. Support against the greenback is seen in the $1.4220-40 area.  I would look for the euro to stabilize and recover in the North American morning.  It has reached support areas on some of the crosses, like against sterling, Swiss franc and yen.    The news flow has tended to focus more on the slowing of the US economy, the debt ceiling wrangling, and the still undetermined timing of a change in US monetary policy, even if the process is beign discussed.  

The other major currencies are holding in considerably better against the dollar than the euro and in fact the majors are really little changed.  Commodities are mostly firmer, including gold and oil,  Equity markets in Europe are mostly higher. 
Euro Drops, Dollar Flat Euro Drops, Dollar Flat Reviewed by Marc Chandler on May 20, 2011 Rating: 5
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