Equity markets in Europe are trading back to the downside after yesterday’s late session rally on negative sentiment created by the latest headlines out of Greece. These headlines centered on the failure of the largest political party in Greece to reach an agreement in forming a new government following the elections held over the weekend. Regional indices were mixed, however, with Asian markets trading higher and US stock futures currently in negative territory. The leading members of the Greek New Democracy party released a statement saying that task of forming a new government will now be undertaken by the country’s second largest political party (Syriza), which will meet with the Greek President (Papoulias) later today.
These stories are creating some excess volatility in the markets, as equity prices were actually supported yesterday following encouraging comments from German Chancellor Merkel, who said that the expects no political difficulties coming as a result of the recent surprise elections in France. Merkel said that the next French President (Hollande) plans to actively engage in the Eurozone’s debt restructuring programs and this helped to calm some of the uncertainty that was initially generated by the surprise election results.
The Greek story called some of this optimism into question, however, and the Euro Stoxx 600 lost roughly 0.5 percent in early trading. UK markets were closed yesterday, so trading volumes were relatively low but the overall outcome led to a round of safe haven buying, with the US Dollar seeing the majority of the gains. The EUR/USD is trading back near the key psychological 1.30 figure and a weekly close below this level will be decisive in determining the current market bias.
Ahead today, macro data will come with the Industrial Production figures out of Germany (expected to come in at a rise of 0.3 percent after a loss of 1.3 percent the previous month) and Housing Starts out of Canada. Given that these figures tend to have a limited effect on price volatility, it looks likely that traders will be driven more by news headlines than fundamental data, so remain watchful for the next developments in Greece when establishing new positions.
Technical Analysis:
The USD/JPY continues to trade with a heavy tone as prices consolidate within a range contained by the 100 and 200 day EMAs. We are coming very close to some critical Fibonacci support, seen at 79.05, and the negative momentum shown in the MACD reading suggests that a test of this level could be seen sometime this week. Longer term view remains bullish, however, so dips into this region should be viewed as a buy opportunity as prices start to head back toward the 85 level.
The DAX is rolling over from its yearly highs with prices attempting to bounce off of longer term Fibonacci support levels. 6350 is now the key level to watch on the downside and a break here will be extremely ominous for price activity for the rest of this year. A weekly close below 6350 will suggest an eventual test of 5840, so longer term traders should wait for markets to make a decisive move before positions are initiated. Resistance above now seen at 6590.
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