Spurred by doomsday scenarios for the euro zone, past two weeks demonstrated flight to safety across the markets as investors dumped risky assets in favor of the safe ones. Equities suffered and Bonds gained, while Forex participants favored USD and JPY to pretty much every other major — which has become an expected behavior when risk-off sentiment prevails once again.
On Friday, we have started seeing some early signs of a possible reversal. The question that everyone wants to know – is it a technical rebound and how much lower can we go if it is? While it is somewhat hard to project how far the single currency can fall, should the downtrend continue (some say it might be at parity to USD by the end of this year), one thing is clear. The Greek factor – the one that drove it all the way down and has been behind all the recent fears is still in place, despite the commitment by the G8 leaders. As long as the country’s exit from the monetary union is a major threat to economic stability for the region as a whole, downward pressure will remain.