Important Week for Euro, Greece at Brink of Default

The past month was very unfavorable for the euro. The start of this month doesn’t look positive for the shared European currency either. This week can define the future of the currency for a long time as the story of the Greek debt crisis may come to an end (most likely a bad one). Another important event this week is the monetary policy meeting of the European Central Bank.

Greece failed to comply with the budget deficit requirements set by the European Union, the EU central bank and the International Monetary Fund for the nation to get the next portion of the bailout. The new Greek budget contains the deficit of 8.5 percent, while Greece had pledged to cut the deficit to 7.6 percent. Finance Minister of Slovakia said that Europe should prepare for a default in Greece. Some German politicians claimed Greece is practically bankrupt.

The ECB policy meeting will be conducted on October 4. Many market analysts believe the central bank will cut the main interest rate by 25 or even 50 basis points. Other analysts think the bank may leave the lending rates unchanged, increasing the size of bond purchases (the policy known as quantitative easing) instead. Either of these decisions should be bearish for the euro.

John Kicklighter, Senior Currency Strategist for DailyFX.com, pointed out that the sheer amount of pessimism on Forex market means any positive news may bring relief to the euro, if only temporary. He also speculates that both an interest rate cut and an expansion of asset purchasing program of the ECB would be negative for the shared 17-nation currency, but if Europe’s central bank would decide to perform only one of these actions, putting off another, the euro may actually benefit from such decision.

ForexCrunch named several key levels for the EUR/USD currency pair. Among them 1.30 level is very important from the psychological point of view and many traders watch it. A breakout below this level would reinforce the bearish tendencies. The price stalled near 1.37 recently and that should provide a near-term resistance.

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