The possibility of a Greek exit continued to undermine the risk appetite last week. Although the latest polls indicate that over 80% of Greeks prefer to stay in the euro-zone, the question becomes how many of them would like to follow the austerity which is necessary to receive the bail out. Besides, leaders from Italy, France and Spain voiced their ideas of issuing joint bonds for the 16 Euro nations, but Germany remained firmly opposed to this idea as Chancellor Merkel questioned whether this instrument will provide incentives for countries with large deficits to spend more than they should. Other than the threat of “Greexit”, financial problems in Spain and recession concerns in the Euro zone are likely to worry investors for the foreseeable future. Without any possibility of stimulus programs from the Euro-zone in the near future, the Euro has dropped to its lowest levels in 22 months at 1.25 levels. However, the EUR/USD has dropped 500 pips since it lost its support at 1.30 levels, so technically speaking, the short term target should have been reached. There is a strong chance of seeing a short-term relief rally, but bear in mind that fundamental factors strongly favor selling into any significant rallies in the Euro. The pair may bounce back to at least 1.2780 -1.2870 before it extends the decline further towards 1.22-1.23 levels.
The key U.S. GDP figures and employment data will spark further volatility this week, as both results are likely to confirm the Fed’s decision in the coming FOMC meeting to replace the OT2 policy which is scheduled to end in June. The Dow-Jones FXCM Dollar Index has made a concrete breakthrough above the critical resistance at 10,080 levels, indicating the Greenback has started the strong bullish wave its expected to ride in the coming weeks to months. The initial target will be set at 10,350 levels, but investors should be conservative to long the Dollar before the NFP results announcement this Friday.