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Euro breaks below critical support
Analyst : Welly Wu (FXCM Asia Currency Strategist, FXCM Asia Currency Strategist )
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2012/05/07 17:27
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Last Friday the U.S. announced its Non-Farm Payroll result, with 115 jobs added in April which sent the unemployment rate to a multi-year low at 8.1%. Although the figure is not as positive as expected (160k), it is clear that the U.S. economy continues to grow at a moderate pace. The recovering US economy continues to outperform the Euro-zone and is likely to reduce the likeliness of any further QE policy by the Fed. Ben Bernanke and few Fed members are giving speeches this week which will be closely watched for any hints on the next stages of monetary policy.

Before that, the weekend elections in France and Greece have already terrified investors, as the new governments are expected to push back on the austerity measures and bring another flare-up in the European debt crisis. In France, the socialist leader Francois Hollande has been elected as the new president. There are concerns that his victory may add further pressure on France’s fiscal balances and push the Euro lower. In Greece, as more votes were granted for anti-austerity parties, the two major political parties are not likely to form a new coalition government that will follow the austerity measures under the terms of the second bailout, and may even take a decisively more anti-euro position. Thus, more obstacles during the policy making in Europe to encounter this crisis could have easily foreseen in the near future.
 
Investors worry the political uncertainty could worsen the fragile economy in the Euro-zone. Besides, there are more evidences to confirm the Europe is in deeper recession than expected. The major currencies have been dumped against the safe-haven currencies (the US Dollar and the Japanese Yen), and the EUR/USD plunged below the critical support at 1.30 on Monday’s Asia market. If the Euro fails to make a daily close above 1.3050 it is likely to extend its loss further to the next support located at 1.2630.
 
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