Euro retreated from a one-month high against the dollar as euphoria from the Greek election results are beginning to fade and focus shifts to the Spanish debt crisis.
In early Monday trading, EURUSD gapped higher in the Asian session open in reaction to the news from Greece that pro-bailout political parties won the elections on Sunday. This eased market fears that Greece would have to exit the euro zone, helping euro hit a high of 1.2746 but by the mid-European session the pair eased down to fill the gap, reaching as low as 1.2618.
Uncertainty from the Greek elections may now be in the past but none of the structural headwinds facing the single currency have been dismissed. The euro zone still appears likely to head into a recession by the end of the second quarter.
Meanwhile, the euro region’s fourth largest economy, Spain, is still dealing with a huge debt load and despite a recent bailout from the EU to shore up its troubled banking sectors, Spanish bond yields are hovering back around the 7 percent level, which is perceived as unsustainable