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Euro testing markets’ patience

FXstreet.com (Barcelona) - The shared currency is treading water around the key psychological barrier at 1.3000, having quite volatile session on Monday, and in essence completely removed so far from the recent events in Portugal – over the weekend, the high court discarded part of the new austerity measures pushed by the government. This may be bit premature to infer further developments in Lisbon, although we all remember what happened after the markets underestimated the Cyprus’s effects and generally speaking where there is smoke there is fire.

… 1.3000 handle holding so far

The EUR/USD finally hit the psychological limestone of 1.3000 on Friday, boosted by the ECB meeting on Thursday and the lacklustre Payrolls figures on Friday, hurting the greenback and allowing the single currency to climb to the proximity of 1.3020.

The uncomfortable respite in Italy is also helping the upside momentum of the euro as no further news or events arose after the meeting days ago between the leader of the centre-left P.L.Bersani and the President of the Government, G.Napolitano. Conclusion: the absent of willingness to form a coalition government amongst the three main political leaders still lingers, casting a mantle of uncertainty over the markets that has yet to abate.

On the Cypriot front however, all remains calm as well, thought this does not mean that normalcy has returned back to the beleaguered island. However, the absence of headlines prompt investors to shift their attention to Portugal, for instance, which a priori arises as the main issue in this week’s trading.

When comes to technicals, the cross broke above the downtrend channel set from February highs above 1.3700 and is heading to retest late March highs at 1.3050 (March 25th), ahead of the area of 1.3075 (38.2% Fibonacci retracement of the July 2012-February 2013 upside). Further upside would see the region of 1.3100/20, where sit the March 15th high and the 38.2% of the February-April decline.
On the flip side, support levels align at 1.2890/95, where sits the 200-day moving average, reinforced by December lows around 1.2880/85. A dip beyond that would expose the region of 1.2660/80, where converge the 61.8% retracement and November lows.

Forex Flash: Portugal in focus as yields mount and measures fall – Deutsche Bank

Portugal topped the weekend headlines after the country's constitutional court rejected a number of austerity measures in the 2013 budget late on Friday. According to Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank, “The measures in question included a cut in state pensions and public sector wages, which apparently breach a constitutional requirement that the burden of fiscal policy be fairly distributed and not discriminate between state and private sector workers.”
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