The beginning of September is dominated by an atmosphere of uncertainty about the future of the Euro and an increasing tension in the financial markets. EU officials are having problems with reaching an agreement on measures which should be taken to fight the crisis.
It seems that Greece, which is expected to carry out a set of structural reforms in order receive the next tranche of the EU, IMF and ECB rescue fund, will not be able to fulfill the required conditions. The country's deficit is steadily growing while GDP falls. More and more rumors appear that Greece is moving towards a default and that the best solution for the country would be to leave the Eurozone. Nevertheless Jean-Claude Trichet called for a quick implementation of the rescue plan for Athens and proposed to create a common financial government for the Eurozone.
The Italian government is also delaying the approval of a EUR 45 billion austerity package, which is necessary to convince the markets that the country will not follow in the footsteps of Greece. Debt concerns weighed down on Italian bonds which fell for the 11 consecutive day, while the cost of government and bank default insurance rose to records. The German bund yield fell to a record.
But my points to another important factor which exacerbated the crisis in the Eurozone in recent days: “The sovereign debt issues that started already a year ago, had put the euro zone in a downward spiral that puts the area one step closer to recession day after day. Over the past few days, several factors had add to the negativism among investors.
The IMF warns that Europe might fall back into recession. Managing director Christine Lagarde said in an interview for “Der Spiegel” that European banks need additional financing in order to endure the worsening debt crisis.
Yesterday weak PMI readings for the Eurozone increased the concerns about the region. According to data the final Eurozone Services PMI for August came in at 51.5, unchanged on the flash reading but down from 51.6 in July. This is the second-lowest reading since the recovery began in September 2009. Germany and Ireland posted higher overall activity, but the rates of growth slowed closer towards stagnation.
Technical Talk
The EUR/USD came under pressure past week, gaining bearish momentum that point for a test of the 1.4000 level. Technically speaking euro sustain above 1.4240 level upside next target to watch is 1.4330 and if its below 1.4240 level then 1.3900 series expected.Possibility of 1.3900 series is expected to support by strongly negative market sentiment.
By
M.Zohaib Gadit
Forex Trading Consultant, Shivani Financial
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