The euro withstood the latest barrage of negative news Tuesday to trade nearly flat on the global session against the dollar. Twice during New York trading hours the euro was hit by disappointing news only to creep its way back to around the $1.25 level. The common currency briefly broke lower and hit a session low in morning trading after a report indicated German Chancellor Angela Merkel would never allow the euro zone to share liabilities. However, the euro’s fall to $1.2441 on the news was short-lived after later headlines clarified that the information came from a second-hand source that was relaying Merkel’s comments and not from Merkel herself.
The second knock on the euro came when ratings firm Egan-Jones Ratings Co. cut its view on Germany to single-A-plus from double-A-minus. Egan-Jones warned that Germany is on the hook for as much as EUR700 billion in indirect exposure to the euro zone, of which perhaps only half is collectable. Once again, despite trading lower, the euro found enough strength to claw its way back to the $1.25 range, an indication that the common currency appears to be finding some support around that figure just two days before the start of a key European Union summit.
Following Angela Merkel’s confirmation that Germany won’t favor debt sharing, investors have already largely priced in that this week’s EU summit will be a disappointment. Traders aggressively sold the euro Monday as pessimism took hold of the market and investors sought safe havens ahead of Thursday and Friday’s EU summit. It is now widely expected that no major breakthroughs will be made at the summit to stem the region’s ongoing debt and economic problems. Even a lack of any decisive news could actually help the euro despite the low expectations. That is because many traders are already short the euro. If there is no fresh wave of selling following a disappointing summit, many might end up unwinding those anti-euro bets, which could end up pushing the euro a bit higher.
EasyForexNews Research Team