EUR/USD starts off the week with a drop from 1.3649 to 1.36. This comes on the background of an imminent Greek default, despite last minute efforts by Greece to provide more measures. Trouble in the European banking system is also acute.
While this is very early trading, it looks like the avalanche continues. Update.
The Greek finance minister, Evangelos Venizelos announced a property tax on Sunday, in order to appease the EU and the IMF. Greece is in need of around 2 billion euros in order to fulfill the goals.
Will this measure pass the Greek public? The Prime Minister needed a huge security when he spoke on Saturday. The Greeks seem to be fed up with more taxes.
And this will likely be too late.
Germany is apparently preparing for a Greek default with two possible scenarios: one in which Greece remains in the euro zone, and another in which it leaves. In any case, German banks will take a serious hit, and the country is getting ready to help.
Also on the weekend, a German minister from the FDP said that a Greek default “is not a taboo”. Up to now, these statements weren’t heard.
Bank trouble
The Financial Times reported over the weekend that European banks have very serious trouble in getting funding in US dollars. This isn’t new, but FT provided an estimate of 500 billion dollars of a funding gap. This puts a lot of pressure on the banks.
And the timing is bad: Moody’s is about to complete a review of the French banks – a review that began in June and is expected to end by Thursday. BNP Paribas, Credit Agricole and Societe Generale are all candidates for downgrades.
All these banks have serious exposure to Greece and also have very high leverage. This poses a serious threat to all the system – these banks are huge.
Support for EUR/USD is found at 1.3570, followed by the all important line of 1.3440. Resistance is now at 1.3630.
For more on the euro, see the euro dollar forecast.
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