ForexSpace.com - Forex traders and brokers saw their morning topped off with an extension of the week’s ugly start – at least for the bulls out there – as risky assets sold sharply as the political fallout from Greece continued knocking confidence across financial markets. The delay to any government formation is bringing bond repayment deadlines closer, with another round of elections looking ever more likely.

As European equities headed south between 2-3 percent, the euro was also dragged lower, including EURUSD, which moved below 1.29. Likewise, AUDUSD is also below parity. Not even healthy demand for Spanish and Italian debt at bond auctions this morning were enough to lift sentiment. All it needed to complete the gloomy mood was for a highly-respected economist to pipe up with some doom-laden proclamation about the single currency bloc.

Voila! Step forward Paul Krugman (pictured), right on cue, to deliver his belief that a euro zone collapse could play out within months. And if that isn’t enough to ensure euro sentiment remains depressed, Richard Parker, adviser to deposed Greek leader George Papandreou, not only concurs with Krugman, also revealed that the country has "seriously considered" leaving the euro. This, according to Parker, will likely spark a run on Spanish/Italian banks to Germany, huge draws on ECB credit lines and an end of the euro.

A curious by-product of any such move – and which certainly concentrates the mind on peripheral issues from a Geek withdrawal – came in the form of electrical retailer Dixons, which has just revealed plans to shut its shops in Greece if the country leaves the euro. The company – owners of PC World and Currys – says it is nervous about the chaos and civil unrest if Greece is forced to quit the single currency and return to the drachma.

The announcement was welcomed by Dixons’ life president, Lord Kalms, who says it was "inevitable" that Greece would withdraw. "Greece should never have been in the first place," continued Kalms, adding that Dixons, which derives about 3.5 percent of its group turnover from Greece, should probably not have opened shops there: "With hindsight it was not a good move," said Kalms.

For the moment, we keep watch for Greek political talks, scheduled to recommence today at 1730BST. Also, the euro zone finance ministers’ meet today, which – as Kathleen Brooks, research director with FOREX.com, says: “The markets will be looking to see if there is any “Greek exit” strategy talk from the ministers after signs they are less willing to tolerate Greek political posturing. Overall sentiment remains fragile and there isn’t too much economic data today to distract investors and traders.”

The probability of Greece leaving the euro will increase if Greece holds a repeat election next month and Syriza wins the most seats (as polls suggest). There is a 75 percent chance that Syriza leader Tsipras will be Greek PM on July 1, and a 50 percent chance that Greece will be using the drachma at year-end, according to high street bookmakers, Paddy Power.

Additionally, all eyes will be on the minutes of the FOMC meeting last month, released this coming Wednesday. Any signs of QE from the US Federal Reserve could help to calm risk markets later this week as Fed liquidity may be a panacea to Greek political risks.

“We have seen a pattern emerge in recent sessions where sentiment is weak in the morning before picking up in the afternoon, thus EURUSD may find some support just ahead of 1.2860 as we progress towards lunchtime in London,” concludes Brooks.

Drew Hillier. Editor