EUR/USD Falls to Support on Fresh Debt Crisis Mess

The weak US Non-Farm Payrolls should have helped EUR/USD on hopes of dollar printing. But the meaning of this report for the global economy and the deepening crisis in Europe weigh heavily on euro/dollar, which is struggling at support

Greece is in trouble: it missed its deficit targets once again, and the next tranche of aid is doubted. We’ve been in this movie before. The EU / IMF delegation suspended its inspection in Greece for about two weeks. Do they hope that Greece will take some action in the meantime? Will the bad numbers morph into good ones?

Probably not: its the same Greek salad with a different dressing. It’s Déjà vu all over again, and this time with a Finnish spice: the demand for collateral in return for the next tranche of aid stand firm.

EUR/USD is just above 1.4220. It made dips to lower ground but didn’t get too far: only 1.42. A break under 1.42 will confirm the move. Next support is at 1.4160, followed by 1.41. Resistance is at 1.4282.

See the euro dollar forecast for more.

Spain and Italy

In the meantime, the ECB has lowered its massive bond buying program of Italian and Spanish bonds. This resulted in a rise in yields: Spanish 10 year yields are moving up to almost 5.10%.

The ECB managed to take them as low as 4.90%. The spread between German bunds and Spanish bonds is above 3% for the first time since the intervention. What did Trichet think? That’s it’s a single operation?

Italian yields made an even bigger jump to 5.24%. In Italy, Berslusconi’s government had to back down from some of the austerity measures initially announced. This adds to the pressure.

Next week, Trichet and his colleagues at the ECB will meet to decide on the rates. The right thing to do in my opinion is to lower the rates. Trichet is unlikely to act on this, but he will hopefully reinforce the bond buying scheme.