EUR/USD Gaps Down After Syriza Victory; Could 1.10 Be Next?
Matthew Weller | Jan 26, 2015 12:08AM ET
For EUR/USD, it never rains, but it pours.
After last week’s announcement of a larger-than-expected QE program from the ECB, euro bulls were dealt another blow as Greece’s far-left Syriza party secured a victory in the country’s snap election. For those who don’t follow Greek politics closely (i.e. the vast majority of traders), Syriza campaigned on a platform of renegotiating the onerous austerity measures under which the Greek populace has been yoked since the Troika bailouts years ago.
It’s important to note that Syriza looks likely to fall just short of an outright majority in Greece’s Parliament, meaning that the party will have to take on a coalition partner that could moderate its stance slightly (full results will not be available until early in the morning on Monday). That said, Syriza’s performance outperformed the pre-election polls and gives the party strong support moving forward.
While the party’s leader and new Greek Prime Minister Alexis Tsipras recently toned down any rhetoric about Greece leaving the Eurozone, he still struck a defiant tone in his victory speech, stating:
“Greece is leaving behind the austerity that led to destruction ... The verdict of the Greek people indisputably cancels all the programs of austerity. The verdict of the Greek people makes the troika history in our common European framework.”
Tsipras’ aggressive tone sets the stage for an inevitable conflict with high-level European policymakers, specifically the Germans. Indeed the president of Germany’s Bundesbank, Jens Weidmann, has already warned against renegotiating Greece’s debt in the wake of the election, declaring that he hoped:
“the new government won’t call into question what is expected and what has already been achieved.”
A foreign policy spokesman for the Germany’s ruling CDU party was more blunt in his view:
h3 Market Reaction/h3“Syriza shouldn’t expect Germany to renegotiate with the programs. They have to stick with what the former government has promised”
At this point, it’s difficult to handicap what will happen with Greece’s austerity measures, but the immediate conclusion is that the Eurozone is in for more near-term political uncertainty. Not surprisingly, EUR/USD has gapped down in the wake of the election, with the pair trading back near last week’s 11-year lows in the lower-1.1100s. The euro was down even more against the safe haven yen, with EUR/JPY trading down at 131.00, a new 1.5-year low.
While we were cautiously optimistic that EURUSD could hold its long-term 61.8% Fibonacci retracement at 1.1200 last week, today’s open suggests that key support level could also give way. If buyers don’t step in soon, euro bears could step in to push the pair down to key psychological support at 1.10, if not lower. For now, the path of least resistance remains lower in the single currency as traders’ worst nightmares about a Grexit or political contagion to Spain, Portugal, or Italy remain on the table.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.