This break under 1.30 is probably for real. After a few dips below the round line, it seems that the euro is now leaving his line well behind: the pair is trading at 1.2930 after making a free fall. Euro/dollar is at its lowest level since May 30th.
The main driver is the political crisis in Portugal. The country was hardly making it with the bailout program with its austerity measures. It seems that austerity could bring it down.
Crisis in Portugal
It began with the resignation of the finance minister, who was one of the leading people behind the austerity drive. The Prime Minister nominated a substitute for the job, but the quick move angered the junior coalition partner and led to a resignation of the foreign minister.
The PM went on national television and tried to reassure that everything was under control. However, this morning brings more political issues: more ministers are set to resign.
Portuguese 10 year bond yields accelerated their surge. The chances of Portugal leaving the bailout program now seem slim, and the chances of another bailout or even a euro-exit have risen.
This comes at a bad timing for Germany and Merkel: elections are held on September 22nd, and another bailout for Portugal will not be likened by the German public.
EUR/USD
EUR/USD already dipped below 1.30 and found support at around 1.2960. The fresh news sent it to a new low at 1.2922.
Support is found at 1.2890, followed by 1.2840. On the topside, 1.2960 serves as minor resistance before the 1.30 battle line.
For more, see the EURUSD forecast.
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