EUR USD (1.2510) Market expectations for any policy solution from the latest EU summit are exceptionally low. The general impression seems to be that the meeting will deliver a roadmap to the roadmap. With the German Chancellor having signalled her strong opposition to debt mutualisation preceding any fiscal and supervisory union, the stage is set for a contentious debate. But the fact that a variety of options will be discussed including a redemption fund, bond buying by EFSF, roadmap to banking union and the concept of a common finance authority to supervise national budgets, one gets the impression that at least the negotiators will not tumble into groupthink mode – a characteristic rather of homogeneous groups. In fact yesterday the German ruling party fraction even agreed to let the ESM be used to directly recapitalise Spanish banks without simultaneously elevating the Spanish national deficit. This development even leaves the impression that the summit might even deliver more than one modest steps and thus an upside surprise. Yesterday the euro again drifted near to the lower border of the current consolidations zone, thus making it more visible. Since the market is more or less resigned to euro weakness, a break of lower border at 1.2435 could result in a downside false break. The good support at 1.2360 could even serve as a turning point for a swift recovery. To the upside, the first hurdle is at 1.2575.
Click here to read the full report: Daily Forex 06.28.12
Deutsche Bank