The European Debt Threat by Michael Boutros

The euro was firmer against the dollar at market open in London. Optimism on the Greek debt threat, in combination with profit taking, pushed the single currency to a high of 1.3654. Greece is set to unveil a new austerity package today after EU officials said that more steps are needed to reduce the deficit. The government faces increasing civil unrest with more strikes being scheduled to be held in Athens next week. The euro remains under pressure despite optimism about the government's expected 4 billion euro cut in spending. Concerns about other EU nations are mounting as Spain's 1.6 trillion dollar economy faces pressures to reduce their growing deficit as well. With over 19% unemployment, and an 11% debt to GDP ratio, the 4th largest economy in the EU is quickly reaching 'Greek' status as analysts question whether the government can effectively implement strict austerity measures to make any significant reduction in the nations deficit. With an economy the size of Greece, Ireland, and Portugal combined, investors are shifting their focus to Spain, which is now viewed by many as the main risk to the union. Much emphasis has been put on the EU's handling of the Greek crisis as questions arise as to who will be next in line to need EU assistance.

Having tested 1.3650, the single currency faces ceilings at the 100% Fibonacci extension taken from the Nov 25th and Jan 13th highs at 1.3660 followed by 1.3680. Ultimately, the euro would need to make advances past the 61.8% Fibonacci extension taken from the Dec 18th '08 and the Nov 25th '09 highs, using the Mar 4th lows, at 1.3740 to signal a trend reversal. Support rests at the 1.35 handle, which the currency has attempted to break several times in the past weeks. Downside risk increases with a break of 1.3450 with additional demand sitting at the 1.34 handle followed by 1.3380.