Will they won’t they? The EUR dipped in late afternoon trading yesterday as confusion and uncertainty remains on whether a comprehensive plan will be announced to resolve the debt crisis at the EU summit on Sunday. Germany and France are trying to downplay expectations saying that there is no quick fix and that final decisions will not be made. EUR/USD dipped on the uncertainty to around the 1.3650 level (Thursdays low) and bounced back up in the Asian session overnight to around a figure higher.
A report prepared by the Troika (The IMF, EC and ECB) “highly advised” to release the sixth tranche of aid to Greece. No matter that Greece didn’t reach all the set debt reduction objectives. Apparently, the austerity measures implemented by the Greek Government will allow them to meet the debt objectives by no sooner than 2012. Call me cynical, however I’m sure we’ll no doubt be talking about how Greece “just missed” its debt reduction objectives in the New Year. The report prepared by the Troika will influence the EU summit (now split into two days – Oct 23rd and Oct 26th) where the three main topics will be the Greek crisis, Bank recapitalization, and the long term economic governance of the Eurozone.
It seems it’s the time for a number of reports to be released. Out yesterday from German lawmakers was a document on the EFSF. In simple terms, the European rescue fund would interject into sovereign debt markets instead of the ECB; however it’d be in a limited capacity. The fund would be able to buy up bonds on the secondary market with the caveat being that the country would have to have sustainable debt and respects the deficit reduction commitments. That rules out Greece then.
Over the next few days expect trading to be littered with rumours that we’re close to a deal. An hour later expect those hopes to be dashed. Markets will be driven by a “who said what when”. Getting agreement from all parties on the best course of action by the weekend isn’t going to happen in my opinion as they’re still wide apart in their views.
GBP/EUR flirted with the 1.15 level again yesterday. As I’ve said this week if you’re a EUR buyer placing a market order over the weekend at this level will allow you to capture the upside if nothing concrete is agreed/announced. On the other side, if you’re a EUR seller and something is agreed you should look at placing an order at the 1.14 level. There are far too many variables at this stage to have a clear idea on what is going to materialise over the weekend hence the increased volatility in EUR/USD over the past few days.
Fairly light in terms of data today, we have IFO expectations/business climate/current assessment out of Germany this morning (Sentiment survey) and out of the UK we have Public Sector net borrowing (Sep) released at 9.30am (UK time). Across the pond we have CPI out of Canada with no data out of the US apart from a minor Fed official speaking. All eyes are focused on the EU this weekend.
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