Chris Capre's  Instablog

Euro Hammered, Hits 4-Month Low on Greek Exit Worries
As signs of a deeper recession in the Eurozone spreads with 26 Italian banks downgraded, Spanish and Italian yields at dangerously high levels, and continued worries about Greece leaving the EZ, the EURUSD got hammered selling off for the last 8+ 4hr candles or 32hrs and hitting a 4-month low.

In fact, the last time the EURUSD saw this price was mid-Jan. this year and we do not see downside pressure abating much. Adding salt to the wound was EZ industrial production falling in March which means the hopium policy makers in Europe have been selling about the recession being mild are far from reality (nothing to see here, move along).

Global stocks along with the Euro all took a hit as the worries for a Greek exit are increasing with contingency plans being made out of Germany helping to fuel the rumor-mill. The DOW lost over 125pts or 1% and the S&P shed 1.11% or 15pts. Virtually every index from Asia to the US saw red except for the Nikkei which was the only one to close positive on the day (albeit 20pts - woohoo!).

We also forgot to mention Merkel's conservative party took a crushing defeat on the elections this Sunday which only makes things more complicated for the austerity package. Expect Greece, Spain and the Brady Bunch of players in Europe to dominate the headlines and price action near term. All eyes will be on Greece for if they exit, then most likely, all hell will brake loose with the losses being far worse then anyone expects.

EURUSD - Gap Not Filled, Runaway Train?
Over the weekend, the EURUSD gapped down and has not even come close to filling it, selling off for now 8+ consecutive 4hr candles. Although we do not see downside pressure abating much, this is quite a lot of consecutive 4hr candles to close bearish and approaching the historical maximum of 10. Could it break this all time max? Certainly, and now would be the most likely time. However, we do not want to chase the trend at this moment and prefer to trade pullbacks.

Thus, we are looking for price action pullbacks to the dynamic resistance and 20ema on the 4hr chart which has held price below it since May 2nd. Unless some silver bullet comes out to save Europe (which we don't see) or Greece does a 180 and decides to keep the debt-slavery going (I mean austerity package terms), then we expect any and all rallies to be opportunities to sell the pair for an eventual break of 1.2821 and the medium term target of 1.2650 or the 2012 yearly lows.

(click to enlarge)

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