Euro trades heavy after Portuguese Finance Minister resigns
The euro traded heavy as political uncertainty took its toll on the Eurozone after the Portuguese Finance Minister resigned, through the country into chaos. This incident comes just days before Greece is scheduled to meet the latest terms of its next aid tranche. Portuguese bond yields climbed nearly 100 basis points to 7.40%, but were as high at 7.80% earlier in the trading session.
The issue in Portugal has been that austerity in the face of continued contraction and high levels of unemployment has eroded public support. Finance Minister Gaspar, the architect of the austerity program, resigned. Portugal’s equity index, the PSI-20, tumbled by 6.5%, dragging down the main stock index of Spain, which declined more than 3.0% and the Germany’s DAX index which was down 1.8%.
Prime Minister Coelho named Maria Luis Albuquerque to replace Gaspar. Although she is the best candidate for a replacement this move triggered the resignation of the leader of the junior member of the coalition, Paulo Portas, who held the foreign ministry portfolio. Portugal is very vulnerable to a rise in global interest rates, as it is projected to exit the assistance program in mid-2014.
With interest rates on the periphery of Europe rising, the Euro currency faced uncertainty pressure which saw the currency pair against the dollar lose ground initially but rally back ahead of the US trading session.
The EURUSD dipped below support near 1.30, and could test the May lows near 1.28. Resistance on the currency pair is seen near the 10-day moving average at 1.3060. The RSI (relative strength index) is stable at 39 which is on the low end of the neutral range but above the oversold trigger level of 30. Momentum continues to point to lower prices, with the MACD printing in negative territory.
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