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Bank stocks, peripheral bonds and a big fat Greek deficit pushed the euro/dollar even lower. It broke support and is now headed further down.

After stalling at support at 1.4030, the pair continued the free fall and broke under the round 1.40 line. 1.3965 was the trough in May, and 1.3950 is the real tough line below. Here are four reasons:

  1. Bank stocks lower: What began in Italy on Friday is now seen all over the continent. Confidence is lower.
  2. Italian yields at previous Spanish levels: 10 year bond yields are currently at 5.68%, levels considered prohibitive for Spanish yields until recently.
  3. Spanish yields at 6%: Europe’s fourth largest country is seeing record highs on 10 year bond yields. A big daily jump sends yields to 5.994% at the time of writing. This is already far off the 5.6% cap that was seen earlier in the week.
  4. Greece missed deficit target: Wasn’t Greece saved? It was temporarily saved from a default, but it doesn’t justify it… The debt struck country had a deficit of 12.8 billion euros in the first half of 2011, over 20% higher than expected. European leaders are already accepting a default.
1.4030 is now resistance, followed by 1.4070. Support below 1.3950 is at 1.3860.
Will we see an emergency cut of the European interest rates?