I tried to warn last week there are so many directions this could go in, it's not as simple as a US election where 1 wins and 1 loses, the ND still has to form a government and there could be significant challenges ahead, that is why I thought we would (and still thin we will) see extraordinary volatility this week as news breaks in both directions and rumors abound. There are already rumors that New Democracy's assumed ally, PASOK, would form a coalition government with the ND, however there are rumors (call it news), that PASOK party leaders are saying they may not or will not be a part of a coalition government with ND is Syriza does not also join-the chances of Syriza joining are about as good as Spanish 10 year yields falling to 4% tomorrow. This may leave the ND scrambling to cobble together a coalition with fringe groups like the Neo-Nazis!
Furthermore, New Democracy campaigned on pledges to alter the Greek bailout deal, something Germany has already shot down, while celebrating the ND win and looking forward to working together with them (obviously within the framework of the memorandum already in place). However as we have seen with Spain, those who are in the most trouble and have the most power to inflict contagion on the core, seem to get the best deals, perhaps the ND will have a new, tougher face in EU negotiations. You can imagine how many ways this can play out just based on rumors alone.
There's also the question of how the market may respond to not getting Central Bank easing on the back of a ND win or perhaps there still will be a coordinated Central ban move? There's too much up in the air, just remember the Spanish Bank bailout announcement last weekend that sent the futures and Euro up Sunday as the markets opened only to see it sold in to aggressively after the open Monday.
Furthermore, while this "may" avert a Greek disaster, it changes nothing in Spain or Italy.
However, we have had some very bullish sub-intermediate 3C signals, so perhaps we don't know all of the broad strokes.
In any case, this is how the EUR/USD and ES has reacted thus far on the Sunday night open, just remember, volatility.
A closer look at the Euro, losing some ground, but still gapped above Friday's close and still above the area of resistance in which a Euro short squeeze (thus a market short squeeze) becomes much more likely.
Perhaps the CB's will wait and see what the chances of New Democracy forming a government are before we here much more from them.
For now, I suggest not reading too much in to this "New" news, last weekend was a great example of unintended consequences that changed the market from last Sunday's bullish open to Monday's train-wreck (and this event has many more tentacles). However, the positive divergences on the 30-60 min charts do retain my interest.
I'll update more tonight if events warrant, I'm not going to chase every little rumor overnight though.
