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EU Summit Fails to Impress But Euro Decline Subdued

Last updated 12/9/2011 3:42 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

The EUR/USD was set to open lower in European trade after EU leaders agreed to a fiscal compact but failed to secure changes to the EU treaty over the  strenuous objections of UK. Instead the policymakers will push for intergovernmental accord that will apply the 17 members of the EZ and will subject them to stricter budget overview procedures by the European commission. The text of the accord  will be drafted by March of 2012 and is not expected to require referendum approval.

Overall, the EU policymakers moved a step closer towards more fiscal integration, but the move was very gradual and far less than what the market wanted. Amongst some of the shortfalls, the EZ officials decided to cap the ESM  at 500 Billion euros and refused to turn the facility into a bank. The EU officials also agreed to make available an additional fund of 200 Billion euros to the IMF but left open the question of how those funds will be used in the immediate future.

The EU summit has a created a more  structured framework to resolve fiscal issues in the union but provided absolutely no concrete solutions to dealing with massive financing problems  facing several key member nations. The yields on both Italian and Spanish sovereign bonds rose in the aftermath of the release as both nations face large refinancing rolls next year at markedly higher interest rates.

Despite the disappointment on the policy front the decline in the EUR/USD was fairly subdued and the pair stabilized at the 1.3300 level in early morning European trade boosted reported ECB buying of peripheral area bonds.  The EUR/USD remains vulnerable to a test of recent swing lows at 1.3240 but given the massive short positioning  in the pair downward progress may stall until the oversold conditions are worked off.     

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Comments (1)

Darkdoji

December 09, 2011 at 05:54 AM ET

Wish there was a feed stream to provide 15 minute updates on potential market reactions in 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.