Markets Assess the Possibility of a Greek Exit from the EMU; S&P 500 Looking to Retest 1280

By Richard Cox
Richard Cox
Richard Cox
July 25, 2014 Updated: April 23, 2016

This month’s selling pressure in the Euro reared its head once again after news headlines cited various sources saying that preparations are being made to allow Greece to exit the European Monetary Union. Some of these news outlets were citing the Prime Minister in Greece for these comments and the uncertainty that resulted from this brought renewed weakness to the Euro currency. Looking at the full interview, however, the Prime Minister’s comments were not so clearly directed at a Greek exit from the EMU and once markets had the opportunity to get past the initial headline, some of the selling pressure in the EUR/USD abated.

Many traders will argue, however, that, at least from a technical perspective, the damage has been done to risk currencies and that momentum has now shifted clearly to the bearish side of things. Risk appetite continues to show that investors remain weary and skeptical of any attempts by EU finance officials to suggest that the debt situation is nearing its resolution.

Tonight will see an informal summit meeting between EU member nations and the main topic of discussion will be the various recapitalization possibilities that exist for Greek banks and the likelihood that we will see common issued treasury bonds for the Eurozone. But given the latest comments from the German finance ministry, the Eurozone bond option is not widely expected to take effect. Expect the downside pressure in the Euro to continue if we see nothing more than a meeting statement that shows a “commitment to growth” bias without any specific policy changes.

In other news, the Bank of Japan completed this month’s monetary policy meeting, and the “unchanged” decision brought some buying back into the Yen, as there was no increase in the central bank’s asset purchase program. Yesterday, Fitch downgraded the Japanese credit rating but the market effect was relatively muted as investors focus on the Euro region.

Ahead today, we will see the minutes from the latest Bank of England monetary policy meeting (from May) and the main aspect to watch will be the number of voting members that adopt a dovish bias in favor of additional economic stimulus. There have been comments recently from voting members which suggest that their neutral stance might be reconsidered in the coming months, as economic data continues to show sluggish growth.

Technical Analysis:

Epoch Times Photo

The USD/JPY is coming into a key inflection point as prices are caught in a downtrend channel on the daily charts and Fibonacci resistance is now seen just below at 79.10. Whether or not this level holds will determine the bias for the rest of this month and a downside break is starting to look like the more probable scenario. The MACD reading continues to show negative momentum, while the daily RSI shows there is more room to extend before becoming oversold.

Epoch Times Photo

The S&P 500 is making a feeble attempt to bounce off of Fibonacci support at 1280 but prices are starting to roll over once again on the shorter term time frames and this level is likely to come under pressure once again sometime this week. A break here will put the target lower at roughly 1200, so expect volatility to pick up on a break of 1280.