The EUR/USD fell again on Tuesday as the markets continue to worry about bond holders participation in “voluntary” haircuts in Greek bonds. If there isn’t enough participation, there is a real threat of a CDS triggered event that would send unknown amounts of insurance contracts into payment, and we could very well see a credit event like in 2008 as nobody will really know who is responsible for these shadowy contracts.
The recent fall has been fairly strong, and the move down from the highs also coincided with the 1.35 level, which was also the 50% retracement from the fall last year. This pair looks set to run down to the 1.30 level as a result, and because of this, the pair can’t be bought at the moment.
However, there is a lot of potential for support to come into play until we get down to the 1.30 level, and because of this, we are more bearish on the Euro at the moment. However, until the announcement on Thursday of participation in the bond write downs occur, this pair may be difficult to trade in general. By 3 pm EST on Thursday, we will know what could come next in Athens.
Obviously, if there isn’t enough participation to make the program work, we would have a massive selloff in risk related assets such as this pair. The event would be very Dollar positive in general, and this pair would be the epicenter of the move. It is in this pair we would see the largest meltdown. Until we know the answers to this question, we actually prefer to be out of the pair, as there is simply far too many moving parts at the moment.
The Friday session will also have the Non-Farm Payroll report, and this will certainly have potential to move this pair as well. So unless we get very strong news on Thursday, this pair will likely be untradeable until Monday, or at least from a stability point of view. We are bearish in general, but aren’t taking a trade at the moment.
Written by FX Empire