(eToro Blog) The uncertainties over Greece continue to weigh on market sentiment, driving up periphery yields and CDS prices, with unsubstantiated rumors of a snap election the new catalyst for a pullback in the euro after the Greek PM failed to get consensus on new austerity measures.The government, is trying to find cross party support for additional deficit measures amounting to €6 billion. The leader of the main conservative opposition has repeatedly criticized government policies and called for more privatization but accompanied by a cut in taxes to get the economy back on track.

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The government, on the other hand, seems to be finding it difficult to proceed with the privatization efforts.Taken together, with the euro's correlation to equity market and overall market sentiment still at elevated levels the euro remains ultra-sensitive to short-term news flow, which is likely to increase volatility and sharp swings in the price. Nonetheless, debt fears seems to ease gradually and the interest rate story is likely win out as the dominant driver of the euro over the medium term.

Sentiment Is Bullish - The EUR/USD continues to trade in a tight range around the 1.4-1.42 zone but with a bullish buildup. A daily close above the 1.42 level will confirm the bullish trend for the mid term with the 1.44 as the next target.A weekly close above the 1.428 will confirm the long term bullish trajectory is back with the 1.45 as the first target and 1.48 as the second target.First supppot zone is seen at the 1.4050 area ,a break of this support will likely lead to a test of support near 1.3750. In addition if the 20-day moving average will cross below the 50-day moving average it will signal more downside potential.

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