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EUR/USD lost an important support line and is falling fast as worries about the debt crisis intensify. The main issue is Portugal, but there are other worries as well.

Euro/Dollar has fallen down to 1.4110. It managed to hold on to support at 1.4160 earlier in the day, but then made a dip under this level and failed get back. This failed recovery attempt resulted in fresh falls as American traders joined in.

The Portuguese parliament now discusses the budget offered by the government. The Portuguese Prime Minister Socrates leads a minority government. This means that he depends on the opposition to pass the budget. The opposition pledged to vote against the government on the budget.

This budget, which includes serious cuts is needed in order to calm down investors that have already dumped Portuguese bonds and sent yields significantly higher. Higher yields mean that Portugal will have a hard time borrowing fresh money in order to pay its debt, and will need external assistance – a bailout.

Other factors

This vote comes in a bad timing – just one day before the EU Summit is held and is expected to approve a new deal for resolving the debt crisis. I’ve already written about how this deal falls short of aiding Portugal and even opens up a bailout option for other countries.

And even one of the real achievements in the EU Summit, the expansion of the EU Bailout Fund, is now doubted as well, as Gerry Davies reports. It may delayed to June, or perhaps indefinitely.

Apart from Portugal, also Ireland is in the limelight. Troubled Irish banks such as the Anglo Irish Bank, the Bank of Ireland and Allied Irish Banks are in big trouble and can hardly pay their debt. The new Irish government wants better bailout terms, but is refused due to its unwillingness to raise the attractive corporate tax.

The new fear, which the new Irish Prime Minister hints to, is that the current bailout program won’t succeed under the current terms, and that Irish banks or the sovereign will default. Or at least impose severe haircuts on bondholders, even senior bondholders.

EUR/USD Levels

The break below 1.4160 opens the road to 1.4030 – this was a tough resistance line, which now works as support. It’s followed by 1.3950. A recovery attempt will test 1.4160, followed by 1.4282.

For more levels and events, see the EUR USD Forecast.

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