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Three Key Issues For FX Markets Ahead of EU Summit

Last updated 10/17/2011 3:45 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Currency markets remained calm on the first trading day of the week with EUR/USD tracing out a narrow 1.3850-1.3880 range in Asia session trade as consolidation was the dominant theme of the day. There was little reaction to the weekend’s G-20 communique  as traders take a wait and see attitude to the policymakers announcement that the Eurozone will "decisively address the current challenges through a comprehensive plan".

The focus turns to the the grand summit scheduled for October 23rd as markets await the resolution of three key issues  - 1). the new package on Greece including the extent of haircuts applied to Greek sovereign debt, 2). the recapitalization plans for EU banks ( with some sources reporting up to EUR200 Billion allocated to that task, while French officials stating that recapitalization must come from private funds, 3). The future state of the EFSF including the possibility of taking on leverage for the fund as well as assume a broader mandate in the capital  markets.

For now the details regarding these key points remain unanswered as EZ governments furiously negotiate in private ahead of the summit. Meanwhile the broader economic climate continues to improve with Friday’s US Retail Sales report  the latest data point to surprise to the upside. That in turn has helped to put a bid underneath the equity markets with risk flows turning positive into the European morning trade. With no additional economic data on the calendar risk FX remains supported and EUR/USD continues to eye stops at the key 1.3900 resistance level with longs having the upper hand at the start of the week.   

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.