Thursday, June 28, 2012

EU Economic Summit Preview: What to Watch

The EU Economic Summit is upon us.  However, even though things got started today, the real fireworks are expected to occur tomorrow as these events never lead to agreements on the first day.  Until the conclusion we can expect lots of rumors and volatility in the Euro.  Overall, this probably isn’t a time to be over leveraged with Euro positions as the risks are just too high. 

That being said, the real opportunities are after the Summit.

Going into the meeting we have three camps forming; Germany, Italy plus Spain, and everybody else.  Unlike previous Summits, France appears ready to sit on the sidelines and hasn’t been a vocal player in the run up to the meeting.  Nonetheless, even without France, Italy and Spain have taken over as the official title of being Germany’s competition, and the countries have clashed over the need of Eurobonds and collective EU fiscal responsibility.

For Forex traders, this stalemate of how to move forward in fixing the EU’s financial crisis has led to very low expectations and has thus led the EURUSD lower.  Therefore, with the present negative sentiment, if a solution of sorts isn’t met by the end of the EU Economic Summit, the EURUSD will be vulnerable to increased selling pressure next week and will be poised to retest its 2012 lows.

On the other hand, with such low expectations, we could see the Euro making a run higher if even a small glimmer of positive news emerges.  Even though the possibility of Eurobonds being agreed to seems like a complete longshot, we could very well see smaller steps taking place, such as the agreement of an EU Banking Union.  Also, any talk of decreasing bureaucracy to stimulate new business growth would also be well received.

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