As a result risk assets continue to be sold but interestingly oil prices are climbing.
Coupled with comments from the Bank of England that failure to find a resolution will lead to “significant adverse effects” on the global economy, it highlights the risks of both economic and financial contagion.
For some European countries this is becoming a crisis of confidence and a breakdown in political talks is resulting in an ever worsening spiral of negativity.
While Monti was sworn in as Italian Prime Minister and Papademos won a confidence motion in the Greek parliament the hard work begins now for both leaders in convincing markets of their reform credentials.
Given that there is no agreement from eurozone officials forthcoming, sentiment is set to worsen further, with safe haven assets the main beneficiaries.
EUR/USD fell sharply in yesterday’s session hitting a low around 1.3429.
Attempts to rally were sold into, with sellers noted just below 1.3560.
Even an intensification of bond purchases by the European Central Bank (ECB) failed to prevent eurozone bond yields moving higher and the EUR from falling.
Against this background and in the absence of key data releases EUR will find direction from the Spanish 10 year bond auction while a French BTAN auction will also be watched carefully given the recent increase in pressure on French bonds.
Having broken below 1.3500, EUR/USD will aim for a test of the 10 October low around 1.3346 where some technical support can be expected.