Euro Slides in Overnight as Concerns Over Austerity Vote Linger

The Euro softened in the overnight against the major currencies as concerns arose that the proposed austerity measures would not pass Tuesday's crucial vote, with a member of Greek Prime Minister George Papandreou's party publicly stating that he hasn't decided whether or not to vote for the deficit reduction measures. While the Greek parliament gave the ruling Pasok party the vote of confidence it needed to retain power on Wednesday, with members voting along party lines, giving the Prime Minister the necessary votes, concerns are arising that the same may not occur at the vote on Tuesday. A failure to pass the proposed austerity measures would essentially translate into a default for Greece.

Ahead of the North American session, durable goods data for May was released by the U.S. Commerce Department, which showed a 1.9 percent increase on a month-over-month basis in the fifth month of the year, after falling by 2.7 percent in April, beating the forecast figure of 1.5 percent, according to a Bloomberg News survey. The data slightly bucks the trend of a string of poor economic data out of the world's largest economy, with the release easing fears that manufacturing production was grinding to a halt.

Euro-Dollar 1-minute Chart: June 24, 2011

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The Euro-Dollar, which initially saw a 20-pip jump on the news in the minutes following the release, eventually fell back from 1.4240 to as low as 1.4205 within 15-minutes of the report. However, the pair quickly rebounded, testing the area above 1.4250 once more. At the time this report was written, the pair had once again pared back its gains, falling to 1.4215. With thin liquidity conditions as well as lower expected volatility, it wouldn't be surprising if the pair was range bound for the remainder of the session.

Also released at 12:30 GMT were the final figures for first quarter GDP, which confirmed that the U.S. economy grew at a 1.9 percent annualized pace in the first quarter. The Federal Reserve downgraded their growth estimates for the remainder in the year, and the 1.9 percent reading is in line with the slower growth now expected. Last month, it was established that the estimate was 1.8 percent annualized growth.

U.S. Durable Goods Orders (MoM): June 2008 to Present

Courtesy: Bloomberg

In the wake of the release, the Dow Jones FXCM Dollar Index initially rose, from 9661.88, to as high as 9667.47. At the time this report was written, the index had fallen back to 9655.24. The index could continue to gain if risk-aversion continues to hold; the FX Carry Trade Index shows that riskier assets are slightly lower against the safe haven currencies.

Fundamental Headlines

• Italian Banks Plunge on Ratings Review – Bloomberg

• U.S. Stock Futures Rise on Durable Goods – Bloomberg

• Greece Agrees on Austerity Plan with EU, IMF – CNBC

• Euro-zone Crisis Most ‘Material Threat' to U.K. – WSJ

• U.S. Says Gadhafi Might Flee Tripoli – WSJ

EURJPY: Despite the seemingly bullish data out of Europe that the European Troika approved a fifth tranche for Greece, clearing the way for another €12 billion in loans to the indebted periphery country, Euro-based pairs remained under pressure headed into the last trading day of the week, with the EUR/JPY pair the worst performing pair across the major currencies. In fact, concerns over contagion are rising, as denoted by the German 10-year government Bund; the Italian-German 10-year spread widened to a record of 212-basis points on Friday.

Taking a look at price action, the EUR/JPY pair continues face downside pressure, as expected. The pair looks to test last week's low of 113.487, and then the May low of 113.401. With fundamental headwinds facing the Euro, this is a distinct possibility over the coming days. The daily RSI is falling, now at 43, from 48 on Tuesday. Similarly, the MACD Histogram shows a bearish divergence, with spread widening to -11. The Slow Stochastic oscillator flipped towards a sell signal today, with the %K falling below the %D, at 32 and 34, respectively.

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

Follow Christopher Vecchio on Twitter: @CVecchioFX