The news out of Greece is good. A coalition has been struck that will pass the EU-mandated reforms in order to receive the upcoming aid tranche. Papandreou will step down, a new PM will be named Monday and an election will be held after the aid is dispersed.
Barring any surprises (and they can’t be ruled out) this clears the way for a short-term bounce in the euro, which opened the week at 1.3780. Looking at the chart, I expect a climb toward the 100-day moving average at 1.4040, or perhaps a shade below, followed by a prolonged downtrend that will be confirmed by a break below 1.36.
My trade will be to sell EUR/USD around 1.40 and hang on for the ride lower. I will add on a fall below 1.36 and take profits after the first significant spike lower, or 1.32.
The two catalysts I envision for the move lower are slower growth, highlighted by further ECB cuts and political discord, which will resume in Greece in the elections and is likely to arise in Italy.