You’d be forgiven for thinking that parts of Europe were gearing up for a war after the comments that have been made around the continent in recent days with Greece’s prime minister having some harsh words for Europe’s paymasters after those controlling the coffers are withholding the latest planned bailout.
The lack of trust from the likes of Germany, France and other countries that Greece will not actually implement the agreed austerity measures is fuelling a loathing amongst the Greeks, especially against the Germans. You can’t blame the paymasters though as they’ve seen the Greek mess around before, promising real reforms only to get the cash and then not implement the promised changes. With elections due just after March 20th when the next bond repayment is due there’s nothing to say that any new ruling party won’t simply say thanks for the dosh and then refuse to make the cuts.
Obviously there’ll never be a war in Europe but the rhetoric is worrying. Greece is heavily reliant on German tourists who flock each year to their hotels, islands and beautiful beaches but for the many that are choosing not to go to Greece are giving it second thoughts for fear of reprisals.
The bailout funds are still not guaranteed and this is rattling markets this morning after having affected the trading session in the US yesterday. The declines across the pond have filtered through to European trade with the FTSE lower by some 50 points to around 5840. This move lower has brought the index below some important near term technical indicators and brings us to quite a major support area around the mid 5800 region. Further weakness below here could open up the way to 5800.
But whilst it may all seem doom and gloom this morning as we batten down the hatches in preparation for a Greek invasion of Germany, there have been tentative signs that things are on the mend. Unemployment in the UK remains at a 15 year high, but the figures were better than expected and actually showed a decline in the number of unemployed and a rise in the number of people employed. The governor of the Bank of England was cautiously upbeat in his quarterly inflation report yesterday, which makes a change to past comments he’s made. The economic data on the whole has been better than expected and it maybe touch and go that we record a technical recession, but a few economists are starting to think that it really can be avoided.
Of course the threats to the economy remain real and Moody’s was on the war path again yesterday as it downgraded a swathe of European banks in conjunction with its downgrades to many countries earlier in the week.
On the currency front the euro has not been immune to the sell off in risk assets and has even been pre-empting the weakness of the past few days after commencing its sell off earlier in the week. EUR/USD is now back below the 1.3000 level as the bears seem to be taking charge again and they are hoping that this is the start of a more prolonged downward trend. For EUR/USD near term support and resistance is seen at 1.2980, 1.2950 and 1.3110, 1.3155, 1.3190 respectively.
Gold too has suffered a little from directionless trade. We’ve highlighted before that the recent inability to take on the highs around 1760 is starting to make some of the bulls nervous and the fear is that this could be the beginning of a greater correction to the downside, into the sub 1700 region. This morning the yellow brick is some 10 bucks softer at 1715.
Brent has bucked the trend of other risk assets being assisted by the rhetoric coming out of Iran who are threatening to stop exports to Europe as the black stuff rallied to above and beyond the 119 level, however this morning the bulls cannot prevent the risk aversion from affecting them as Brent currently trades lower at 118.55.