Equity markets in Europe gapped lower to start the week after weekend headlines centered on the election outcomes in Greece and France. In both cases, the previous majority party lost to the anti-austerity candidates, and this is leading markets to question the political progress that has been made in recent months with respect to the structured debt programs that have been passed. The activity in Europe is dragging on stock prices in Asia in the US as well, with the Euro Stoxx 600 posting declines of roughly 1 percent during the London session.
The Euro Stoxx 600 has now given back all of the gains made since the middle of April, after the 2.4 percent weekly loss last week. Sentiment was mostly negative into the close on Friday after the disappointing employment figures out of the US. The Non Farm Payrolls report for the month of April came in at an increase of 120,000 and showed the third straight month of slowing momentum in the labor markets.
Longer term, though, the latest news over the weekend will add a definite element of uncertainty in the Eurozone going forward. In Greece, the political situation is more precarious, as additional allotments of economic aid cannot be disbursed without a new budget proposal by June. Essentially, these latest events will likely lead to more analyst suggestions that Greece will be unable to pass economic measures in line with the requirements made previously with the rest of the Eurozone. In this worst case scenario, there is once again the possibility that Greece will have no choice but to leave the EU and abandon the Euro.
Ahead today, regional macro data will come in the form of the German Factory Orders report, which is expected to show a 0.5 percent increase from February to March. Germany is the largest economy in the Eurozone, so while this number generally does not get much attention from markets, any weakness could lead to some momentum selling as traders become less and less willing to hold onto European assets. Also today, we will have the latest French debt auction, where the country is looking to sell 8 billion Euros worth of one year treasuries.
Technical Analysis:
The EUR/USD is continuing to post lower highs and the downtrend has now been confirmed with a final break back through the psychological 1.30 level. The latest break was matched by the drop in the MACD back into negative territory. RSI readings are currently at mid levels, which suggests that the next bear rally has plenty of downside room to extend. Look to sell this pair on any rallies, if given the opportunity. Preferred levels are seen at 1.3080.
The FTSE 100 has finally come to its decision point in its symmetrical triangle with this weeks sharp drop lower. RSI indicator readings are not yet at extreme levels but we are coming into some significant support areas that are likely to hold on first test. Aggressive traders can take short term longs into 5590 but stops need to be kept tight as the longer term momentum is clearly to the downside, suggesting an eventual break.
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