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Investors are growing increasingly concerned about the new government, resulting in Greek 3-year bond yields surging 270 basis points. While Greece remains focused on renegotiating the terms of its bailout package, key European leaders were on the wires saying Greece needs to implement agreed measures or risk bearing the economic consequences.
As a result, it’s nervy times yet again and, judging by the price action in peripheral yields, volatility is likely to be on the way back into play for the euro. EUR/USD had managed to recover some ground from Monday lows below $1.1100 and this was capped after it moved past $1.14000.
There is a downtrend that has been in place since December and I feel this will continue to cap the price action in the near term. Any moves back into this downtrend line, which currently kicks in at around $1.1400 are likely to be used as a selling opportunity. It’s a headline risk environment in Europe at the moment and any comments from officials are likely to drive volatility.