We come into this weekend with the EUR/USD having manged to pare the losses it has suffered the previous Friday (May 20th), rallying from a low of 1.3970 to test the 1.43 level. Here’s a look at the EUR/USD pair (hourly period) taken at around 9:40AM ET (13:40 GMT) We opened the week with a move to a new high at 1.4320, but since then have moved back below the 1.43 area. The question is if the EUR can hold on to its gains from last week, and even extend them, as the EUR’s rally was more fueled by concerns around the US economy and a weaker USD than any major strengthening EUR fundamental event. We continue to have uncertainty around Greece, though generally, last week saw yields on periphery debt ease back. The concern revolves around Greece need to push through more austerity measures and reforms that will speed up asset sales in order to close its budget deficit. The Greek PM did not have luck striking a bargain with his opposition about these new cuts, and that can slow the pace of negotiations with the EU and IMF increase unease about the situation. Bloomberg: “The euro slipped 0.3 percent against the dollar and 0.2 percent versus the yen. Greece’s Antonis Samaras, leader of the biggest opposition party, New Democracy, rejected Papandreou’s austerity plan at a meeting with him and other opposition leaders in Athens, saying his party wouldn’t be blackmailed. European Union officials have called for consensus on the package, which includes an extra 6 billion euros ($8.6 billion) of budget cuts and a plan to speed 50 billion euros of state- asset sales. The European Union may withhold the next amount of credit to Greece after a report by an international panel of inspectors concluded that the debt-laden country has missed all the fiscal targets agreed in its rescue plan, Der Spiegel said, without saying how it obtained the information.” We see that unease coming through in higher yields for countries on the periphery, with Portugal sticking out. “Portuguese 10-year bonds fell the most in a week, sending the yield spread with German bunds, Europe’s benchmark government security, 23 basis points higher to 683 basis points, the most since Bloomberg began gathering the data in 1997. Bunds were little changed with the rate within two basis points of a four-month low. Italian 10-year yields rose five basis points to 4.80 percent after the government sold 8.3 billion euros ($12 billion) debt.” A deterioration in sentiment around the sovereign debt crisis could open the door for the EUR to retrace some of its steps against the USD, as we find ourselves looking at last Friday’s resistance at 1.4345, and have not retraced much of that move. Therefore we could see a correction to the 38.2% retracement of the move from 1.4023 to 1.4320 at 1.42. This was an old pivot as well. The report on the Greek economy’s progress in cutting its deficits, if its as bad as Dar Spiegel reports, could have that impact. Especially if nations seem reluctant to offer more funds in a bailout. Now, flipping the scenario, it does seem that Greece is trying to do the right things, and it will be up to the Greek PM to usher through these changes, despite opposition for the populace and opposition groups. That is a tall order, but is the only option for the leader as he tries to keep the country from having to do some sort of restructuring. If EU nations give indications they are willing to offer Greece the guarantees needed for IMF participation, then this latest round of worries can be swept under the rug. At the same time, we do have a slew of US reports on tap this week including our newest measures of the manufacturing and services sectors via the ISM, as well as May’s non-farm payrolls, which are expected to show a slowdown in economic growth. That can pressure the USD. If the theme of USD weakness dominates, and Greece headlines remain relatively subdued, then a break of the 1.4345 area would open the door to further gains to the upside, retracing the EUR’s steep fall from 1.4940. Nick Nasad Chief Market Analyst FXTimes Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.

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