Euro: Headed to 1.25?

The euro blew through its prior support level of 1.2960 easily as contagion fears grow. Bailouts don’t prevent contagions and that is what investors are deeply afraid of.

Moody’s has put Portugal on review for downgrade sparking fears that there will now be TWO countries poised for same downward spiral as Greece.

Fear is an aggressive behavior especially when it seeps into the core of the financial markets. Part of the reason why currencies are so trending is because when uncertainties grow, investors won’t hesitate to sell. However realistically, the risk of rating agencies downgrading Spanish and Portuguese debt to junk is minimal. Spain and Portugal do not have the same funding problems as Greece. The premium that investors demand to hold 10 year Greek debt over German bunds hit a record high of 700bp while the premium for Portuguese debt is 280bp and 121bp for Spanish debt, far below Greek levels. Yet these facts are not be enough to sooth investors who are preparing for the worst and will cringe at even a one notch downgrade.

There are still Unanswered Questions:

  1. Will all Governments approve the package
  2. Greek public unrest likely to continue /worsen
  3. Will it work / does it solve the underlying problem ( probably not)
  4. Contagion to other euro zone members.

As a result, its worthwhile to take a look at the next support levels in the euro. Here’s a weekly chart illustrating the strong possibility of the euro falling to 1.25.

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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