While the upwards revisions to September’s US non-farm payrolls dressed up what was quite a weak October report, and there were some spluttering of headlines out of the G20, the attention of traders today has been the passing of the Greek confidence vote and news that Prime Minister Mr Papandreou is stepping aside and a transitional government may be formed.
The idea is for Greece to introduce a transitional government that approves the debt restructuring plan in order to win over the IMF, EU and ECB and secure the sixth tranche of aid of the first bailout. On the back of this news, EUR/USD rallied from 1.3743 to 1.3839, although it has started to give some of those gains back. Over the next couple of days, we get to hear more from eurozone leaders as there is a eurogroup meeting, to which we hope to hear finer details of the supposed ‘comprehensive solution’ which was presented to the market on October 26. We are looking for more colour on plans to leverage the EFSF, and while it may turn out to be a ‘bazooka’, Morgan Stanley is saying right now that it looks like a water pistol!
It is clear that Italian ten-year yields are reaching very dangerous levels, and the higher they go the more likely traders will look to add short euro positions. No one, it seems, has any faith that Mr Berlusconi can put through his proposed reforms, and there were protests over the weekend in Rome calling for his head. As we pointed out last week, there is significant upside resistance seen at horizontal resistance between 1.3937 and 75 (previous highs on September 15, October 25 and 26).