Euro Lower on Continued Turmoil in Greece and Italy; DAX Focused on 5760 Support

Equity markets and high yielding currencies are seeing some heavy selling as we start the week on Monday on negative sentiment created by the political turmoil in Italy in Greece.  Over the weekend the Greek Prime Minister (Papandreou) agreed to leave his post and the new unified government now looks to put in place the EU requirements that were drafted at the October 26th Summit meeting.

This resolution could be interpreted as mildly positive, given the possibility of last week’s referendum vote but apparently markets are less than optimistic with the prospect of having to rely on a totally new set of politicians in the implementation of Greek austerity measures.

As if this wasn’t enough to destabilize the region, news headlines have begun to turn their focus to Italy as internal discontent is now being seen in the Prime Minister’s party there as well.  Three key members of PM Berlusconi’s party have resigned and six others have made comments suggesting that Berlusconi should be removed from his leadership post.

This internal dissatisfaction could spell problems during tomorrow’s budget vote, as a supportive majority is looking less and less like a realistic outcome.  Remember that Berlusconi was subject to a confidence vote last month and pass by only a small majority.  Failure to pass tomorrow’s budget plans will likely bring renewed calls for a confidence vote and put Berlusconi’s leadership role in jeopardy once again.

In the UK, macro data will come in the form of the Halifax House Price Index and this will be balanced by corporate earnings releases from Ryanair, Great Eastern Energy Corp., TVC and Egdon Resources.  Corporate earnings in the UK have been generally supportive and if we see the trend continue today, some of the latest GBP selling could reserve (especially against the Euro).  In the US, the main data release will be the September Consumer Credit report, which will be released along with earnings from Tesco, Sysco, and Progressive Insurance.

Europe will also see the release of some major economic indicators, with most of the attention being centered on German Industrial Production and Eurozone Retail Sales.  Earnings report as minimal for the region today, so price activity in the DAX and CAC will be dictated by official comments from the newly unified government in Greece or additional evidence of a majority opposition to the latest Italian budget plans.

Technicals:



The EUR/USD is looking weak today, as prices roll over from previous resistance at 1.3850.  Support is now seen very clearly at 1.3650 and it is unlikely prices will hold here again.  A break of support would create a head and shoulders pattern and target the daily 61.8% Fib level at 1.3565.



The DAX remains focused on another test of support at the 5760 level.  This is familiar territory for the index but there is little evidence in the momentum indicators to suggest that prices can remain at these levels much longer.  A break of this level is very bearish and suggests much lower levels in the longer term time frames.