Swing Point On Eur/Usd, The Dollar Index, and Paper Debt

Trading has been flat throughout the Thursday session, something that was not helped by the fact that the Japanese financial system was closed in observance of Showa Day.

The lack of initial Asian momentum looks to have set the tone for other regions to follow, and most traded markets are holding within the previous session ranges. Most pairs have been contained in 50 pip channels that are holding around the Neutral swing point areas.
The European session offered little additional volatility, as the market absorbs news reports surrounding the indebted European countries, with Greece possibly being the tip of the fiscal imbalance iceberg, that also houses Spain, Ireland, Italy, or Portugal stories that are yet to break.

Yields on the shorter-term sovereign debt papers of these countries have gone up over the last few days, culminating with Greek 2-years yields reaching a record 25%. These moves were caused by a possible default scenario that traders and investors are demanding a huge premium to actually hold.
In reality, Greece is a small part of the European Union, and has no real impact on the global economy. However, the fiscal challenges that have emerged in Greece have spilled all over the Euro-area, having a snowball effect that has investors looking for reasons not to hold positions, and debt markets are literally shutting their doors on paper debt that is issued by some EU members.
If Greece gets into default, other European countries could support the burden; however, if Greece drags another 4-5 countries down with it, the result would be a deep recession in the Euro-area, that will be reflected in the global economy as well, as credit markets re-balanced exposure, and mopped up the spillage of yet another credit-crisis style, over-leveraged fiasco.
The headlines in regard to these matters are not to be ignored, as they are very likely going to set the tone for how European currencies are valued, and by default then, how the dollar index moves. Problems in the Euro-area mean Eur weakness, not only against the Usd, but against the other major currencies as well.
There are already financial institutions that have 1.15-1.2000 forecast for the Eur/Usd exchange rate, and if these problems persist, these targets will probably move towards parity.
In the options market, the Eur/Usd volatility smile is strongly skewed towards the left side, meaning that investors are trying to explore the short potential of the pair. Unless the situation changes significantly, retail traders should stay on the short side of the Eur/Usd and look to sell the tests of resistance at the daily swing point R1 and R2 areas.

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