Now, just when he must have thought
he had reason to believe that the worst was over, Mario Draghi is confronted
with the news that in Espirito Santo Financial Group, the main shareholder in this
major Portuguese bank, bond payments and share dealings have been suspended on foot
of what are described as “material difficulties”.
It is not as if the Portuguese economy
has been one of the stars of the Eurozone. It was right in there, along with
Greece and others, when the economic news from the Hellenic destination of
so many sun-seekers caused what seemed like a total meltdown of the Euro in
2008.
The ECB has been quietly working away
on preparations for its bank stress tests, where some 124 of the largest
commercial banks across the EU will be examined to see if they are in a fit
state to withstand economic weakness in their economies. Developments in BES in
Portugal have added a new urgency to this project.
Single
Currency is suffering. Will it last?
The euro has indeed weakened on the
news out of Portugal. It peaked in May at the 1.40 level against the US dollar
and was gently easing down from there, while moving sideways since last month,
with the 200 Day EMA acting as a check on a return to higher rates.
From the Technical Analysis
perspective, the question that has to be answered when attempts are made on a
resistance level such as this, is, of course, whether it will break back
through it, or wind up bouncing off it and moving lower.
The Portuguese news has to increase
the chances that the latter scenario will be the one that will play out, at least
in the short term.
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