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Euro Soars on Speculation of IMF/ECB Deal

Last updated 11/18/2011 7:39 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The EUR/USD soared at the start of North American trade on reports that Germany may be ready to lend to the IMF which would then provide those funds to the ECB so the central bank  could use the capital to support the region’s struggling sovereign debt markets. According to reports, if a consensus is reached, a deal could be struck as early as the EU summit on December 8th.

Although this speculation is far from confirmed, the IMF/ECB deal would be able to sidestep many of the structural impediments that have prevented the EZ authorities from acting more assertively so far as the credit crisis continues to spin out of control. Most importantly such a a deal would avoid the political risk of trying to amend the EU treaty which would not only prove problematic but may also take a considerable amount of time. The IMF structure would also provide the necessary discipline to affect fiscal reforms in the problem nations and will most likely prove politically palatable to the German populace.  

The EUR/USD  quickly rose to break above the 1.3600 level, more than 100 points off the lows of the day.  The IMF/ECB  report could just the type of news to spark a short covering relief rally in the pair, as this appears to be the first proposal that can garner the respect of the market. As we noted earlier, the  pair may be seeing a period of “credit crisis fatigue” and is ripe for a short covering rally as late sellers are squeezed out of their positions.  With 1.3600 taken out 1.3650 comes into view.

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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.