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EUR/USD – How Far Can It Go?
The EUR/USD put in a massive turnaround today as the mother of all short squeezes caught the market by surprise. After Greece effectively walked away from the negotiations and decided to call a referendum, putting it into a technical default to such creditors as IMF, the EUR/USD gapped lower by 200 points hitting a low of 1.0953 before finally finding a bid. But as the day wore on and European authorities made conciliatory rhetoric towards the Greeks suggesting that a deal was still possible if the Greeks voted yes, the single currency staged a massive rally rising more than 300 points from bottom to top.
The question going forward is whether this rally can last. On the face of it the bulls will argue that with Greece either out of the EZ or in it under strict austerity terms, the euro is better off. However that may miss the much longer political damage that such a move could engender. In addition, in case of a default the ECB stands to lose the most money as it have been the primary lender to Greek central bank. In short after the euphoria is over, the landscape for Europe may not look as good especially if other credit issues begin to pop up.
In either case the EUR/USD is likely to face both fundamental and technical headwinds over the next few weeks, as the data is likely to show slowdown in growth in Germany with both Retail Sales and labor data due today and on the technical level the 1.1300-1.1500 corridor will continue to exert significant resistance as that was the area from which the currency broke down in early part of this year.