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Euro Slumps Further As EU Leaders Press Papandreou

Last updated 11/3/2011 3:51 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The EUR/USD slumped further in Asian trade today after European leaders expressed their displeasure at referendum vote proposed by Greek Prime Minister George Papandreou on the issue of  the bailout deal. “The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?” German Chancellor Angela Merkel told reporters just before a Group of 20 summit set to begin today in Cannes, France.  French President Nicolas Sarkozy was  even more blunt stating that Prime Minister George Papandreou’s government won’t get a “single cent” of assistance if voters reject the plan. IMF head Christine Lagarde also weighed in on the matter  stating "I welcome the Prime Minister's indication that the referendum which has been announced will take place as soon as possible so that the Euro Summit agreement can be implemented expeditiously."

The European leaders made it clear that Greece will not be able to receive any bailout funds until the referendum has passed, putting further pressure on Mr. Papandreou whose country is on the verge of running out of funds to finance its day to day operations.   Mr. Papandreou faces internal opposition as well with some lawmakers in his own party stating that he must withdraw the referendum proposal, but he remains adamant that his government needs a mandate if Greece is to proceed with the necessary reforms.

The EUR/USD drifted towards the 1.3650 level as uncertainty over Greece overshadowed the broader G-20 agenda. Later today the markets will also get their first glimpse of the new ECB President Mario Draghi as he faces reporters at the post council meeting press conference. There are 2 key questions that Mr. Draghi must answer. 1). Will the ECB lower its benchmark rate in light of the growing evidence of economic slowdown in the region?  2). Will the central bank continue to purchase  Italian bonds in order to stabilize the credit markets. Just as importantly as policy the market will evaluate Mr. Draghi’s posture, to see if he can command the type of presence that his predecessor Jean Claude Trichet possessed.   Above all else in this time of turmoil, the markets will be seeking reassurance that Mr. Draghi has control of his position and the EUR/USD will react accordingly depending on how well he perfroms.  

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.