ForexSpace.com - Forex news wakes up to the morning after the day of turmoil across the single currency bloc, with investors tapping feverishly on their calculators having seen in excess of £122.3bn wiped off the value of Europe's biggest companies. The principal concern is the gathering sentiment that political rebellion is seriously calling euro zone austerity in to question. No keener is evidenced than the double whammy of the Dutch government’s meltdown and the likely victory of Socialist candidate Hollande who has pledged to renegotiate the agreement to ensure fiscal stability if he wins the presidency next month. All this conspired to undermine the euro, which then took a further battering by disappointing flash PMI reports. And if all that wasn’t enough to suggest a perfect storm sweeping the euro zone, to round out the negative forex news, Italy's consumer confidence fell to 89, which appears to be a new historic low in this time series, from 96.3.

These risk-off developments followed the flash HSBC China manufacturing PMI, which although seeing a rise from 48.3 in March to 49.1, nonetheless remains below 50, suggesting the planet's second largest economy is slowing.  Moreover, given China’s export clout, the softness in the Asian Tiger’s manufacturing sector indicates softer world demand, especially in Europe, China’s largest trading partner.

Once again however, as Econometer’s Mitul Kotecha reminds, the single currency remains resilient and has hardly flinched in the wake of bad news in the region. Nonetheless, as Kotecha says: “I believe it is only a matter of time before the EUR succumbs to growing pressure, especially given a likely widening in its growth gap versus the US. Today’s bond auctions in Spain, Italy and Netherlands will be in focus but ought to provide little relief for the EUR, with the currency likely to edge towards 1.3057 support versus USD.”

The Dutch certainly face a stern mini-test this morning, with two auctions of medium and long-term debt. As Marc Chandler – forex guru – points out, “The Netherlands currently has the highest borrowing costs of all Europe's AAA-rated countries. Yields on 10-year bonds are currently at 2.412 percent, compared with 1.659 percent for Germany, 2.137 percent for Norway, 2.136 percent for the UK and 0.701 percent for Switzerland.”

Indeed, Moody's said yesterday that the recent euro zone developments were "clearly credit-negative for the Dutch sovereign given that it generates both political and policy uncertainty," though the ratings agency highlighted that "the Netherlands is entering this testing period from a position of relative strength."

However, for the time being at least, it’s the French election which looks like being the true bellwether for the euro. After making heavy losses in early trading yesterday following the French election which could potentially destabilize the Eurozone, the euro made back some of the losses against the dollar later in the session to finish the day down only 0.21 percent at 1.3155. As top forex broker Alpari UK’s Craig Erlam says: “The pair looked likely to continue to fall in the afternoon, however the euro found strong support around 1.311, the 50 percent Fibonacci retracement from the lows of 1.2994 on 16th of this month to the highs of 1.3227 on Friday.”

So, with continuing euro zone worries pressing on risk sentiment today, we could see the dollar continue to strengthen this session, potentially testing the 1.30 support level again. However, as Erlam cautions: “Following such a strong sell off yesterday, we could see the markets consolidate a little, which could potentially see the euro move back up towards Friday's highs around 1.32.”

Drew Hillier. Editor