With little in the way of economic data from Europe or anywhere else for that matter today the markets attention is likely to be on the political machinations unfolding in various parts of Europe.

In Greece the game of high stakes poker between the various politicians striving to form a government and the EU continues to play out in the full glare of the markets gaze.

Financial markets have come to know a new player on the Greek political scene in the name of Alexi Tsipras, leader of the left wing Syriza party, who is trying to form a government in the wake of the weekend elections.

He has pledged to tear up the bailout agreement declaring it “null and void”, while also insisting that Samaras and Venizelos revoke their pledges to the EU with respect to the bailout agreement. Neither leader seems inclined to do this.
Tsipras has another two days to try and form a working government and while he is unlikely to succeed the fact that his party finished second in the polling shows the discontent within Greece at this moment as austerity measures continue to crush the economy.

On the other side of the debate ECB board member Asmussen told Greece that they could not renegotiate the deal if it wants to keep the euro.
Ratings agency Fitch already appears to be laying the ground for a Greek exit by saying that a Greece exit would be “bearable”.

The next steps then boil down to who blinks first in this Mexican stand-off. Whatever the outcome it will in all likelihood not be good for Europe.

If that wasn’t enough for investors to fret about the likelihood of a spat between Germany and France continues to grow with German Chancellor Angela Merkel ruling out a renegotiation of the fiscal compact. Given Francois Hollande’s socialist background he would appear to have little in common with Angela Merkel, but they will have to find some compromise to ensure that the new French President is able to claim some form of progress after being elected on an anti-austerity platform.

With concerns about the solvency of Spanish banks rising in the wake of the Bankia story and the impending likelihood that ratings agency Moody’s could start cutting credit ratings on a raft of European financial institutions, the prospects of more stress in the European banking sector looks set to increase.

Moody’s said in mid April that it would look at more downgrades in May, with a review of Italian banks before moving on to Spain and the rest of Europe.

EURUSD – pullbacks from the 1.2960 lows this week seem to be running into selling pressure at the 1.3060 level which is the triangle pullback resistance level.
It needs a close below the February lows at 1.2975 has the potential to open up the lows this year at 1.2630.
Only a move back above the gap at 1.3085 has the potential to stabilise in the short term and target a retest of 1.3200.
The break of the triangle now suggests we could well signal a 500 point move as a minimum price objective, which targets 1.2630 we need to see a concerted break below 1.2975.

GBPUSD – the pound continues to resist the pull of downward pressure that is weighing on the single currency though it did slide below 1.6160, which could see it slip towards support at 1.6050 which if broken would then argue for a test towards the trend line support at 1.5960 from the January lows at 1.5235.
Resistance remains at the trend line resistance at 1.6320 from the 2011 highs at 1.6750.

EURGBP – the single currency continues to hold above the interim support above the 0.8020 level which also corresponds to the June and July 2008 peaks. There is a risk of short squeeze to fill the gap between Fridays low and the highs this week, towards the 0.8100 level, however to stabilise we would need to see a move back above 0.8140, to retarget resistance at 0.8220 and trend line resistance at 0.8260 from the February highs at 0.8505.
Below 0.8020 targets the risk of further losses towards 0.7700 over the medium term.

USDJPY – the dollar continues to find support around 79.70, but the failure to get back above 80.45 is a concern and this keeps the risk skewed to the downside.
A failure to get above the weekly cloud resistance keeps the current momentum skewed towards the downside. A break below 79.70 would then target 79.20 initially on the way to 78.35 and the 200 day MA.
The 80.42 cloud line should now act as a resistance level and for the dollar to stabilise we would need to see a close back above this key level.