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The ECB decided to lift the waiver on Greek government debt as collateral. This effectively means banks cannot use Greek government debt as collateral for loans. Markets interpreted this as a fresh concern after a period of optimism with the ECB going as far as saying it can no longer assume bailout negotiations will be concluded successfully. Given Syriza was voted in to make some changes and take an aggressive stance, many now fear if the new government yields then this will not be taken easily by the Greek population.
Additionally the ECB announcement is likely to result in a run on the banks. With this in mind, the euro’s recent run came to a swift end. EUR/USD had ascended to $1.1534 this week and was looking like it was in for a near term squeeze higher. This move had also seen EUR/USD break a downtrend resistance line which had been in place since December. This line can be drawn from highs at $1.2561 and capped any recovery since then. The drop in EUR/USD overnight has seen the pair retest this previous downtrend early in Asia. Should we not see a bounce off $1.1300 then renewed weakness could take the pair down to January lows ($1.1097) yet again.