The sovereign debt issues are back in the headlines once again, with Portuguese bond yields reaching new all time highs last week, and yet there appears to be no single reason for the fall in confidence. My own thoughts are that investors are now becoming increasingly frustrated at the lack of progress in strengthening the EFSF, the stabilization fund for the bailing out of weaker member states. In simple terms, bond markets have demanded an expanded EFSF in order to minimize the risk of a debt default, and as such consider the current plan too small in the event that either Portugal or Spain eventually default. Germany of course holds the whip hand as the driving force of Europe at present, and refuses to allow further expansion of the fund or purchasing peripheral government debt in the secondary market, drawing a line in the sand for all to see.
Next week sees a further round of scheduled meetings for EU finance ministers, which will no doubt result in more lukewarm words which mean little and achieve nothing. With the US dollar now showing signs of renewed strength and with the euro likely to come under further pressure this week as the markets react to further disagreement in Europe and potential defaults as a result, we are likely to see sustained euro dollar weakness this week.
From a technical perspective on the weekly chart, we now have three consecutive doji candles, which are clearly signalling a pullback and move lower, which may test the 1.3363 area early in the week, and should this level fail to provide any support, then expect to see the pair fall further, possibly towards the 1.3241 region as a result.
Why not join me in one of my FREE live training rooms – I look forward to seeing you there – Anna