By TraderVox.com
Tradervox (Dublin) – The EUR/USD opened the day negative pushing the currency pair to four month lows of 1.2656. The pair opened the day around the 1.269 level but was hammered further into the day as the risk aversion began to grapple the market .This risk aversion saw huge dollar inflows driving the Dollar Index to monthly highs of 81.7.
The political situation in Greece and the fears of financial stability of Italy and Spain were the major drivers of risk aversion. The political picture in Greece has become once again uncertain with fresh elections likely to be around early next month after talks between parties failed early this week. A care taker government has been appointed to take care of Greece for the time being. Speculations are running wild with Greek exit on the top of the agenda. In the wake of this uncertainty the Fitch rating agency has downgraded Greece to one notch below investment grade.
Europe saw further downgrades in Italy and Spain. Moody's Investor Service downgraded 26 Italian banks and 16 Spanish banks. This has led to a sharp rise in the bond yields of both the countries and is detrimental to the Spanish Prime Minister, Mariano Rajoy’s efforts of to cut the budget deficit and bring it down to the European Union acceptable levels.
The Euro is seeing a relief rally towards the close of the European session. The currency is currently on a corrective bullish move with the EUR/USD pair lurking around the 1.270 level. The slight bullish revival in the EUR/USD can be attributed to two reasons. First is the presence of a large number EUR/USD barrier options around the 1.26 level.
Another is the G8 summit this weekend in the US. This is a high risk event and is likely to cause major fluctuation when the markets open next week. So traders are closing out their positions before the weekend to account for this risk event.
The Euro bullish trend is weak and flat. However, the volatility is in favor of the bulls and this could drive the pair to 1.273 levels where it is likely to meet a strong resistance.
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