EUR USD (1.2575) Given the ultra-low market expectations for the EU summit, even a very modest softening in Germany’s tough stance would have been enough to surprise positively. This seems to be the case. It is not that the concession on the seniority of bailout funds, the halt to further austerity conditions, or even the ambitious step towards a banking union, will be decisive in arresting the deterioration in the eurozone. Conspicuously, however, these are all measures that address the crisis in the present. There may have been recognition that structural reforms alone are not enough to restore confidence and to ease pressure on peripheral yields – without more forceful action in the short term, there might not be any eurozone left to save in the long term. During yesterday’s session the euro violated the highly visible lower border of its 1.2435 – 1.2745 congestion area. As suspected, the move proved to be a false break and, this morning, the single-currency recovered more than two big-figures. We now expect the rally to be pursued to the upper border. If that can be broken, at least another 100-pip rally (but probably more) would be likely. To the downside, we peg initial support at 1.2510, but it is the lower border that holds the key to a continued bullish development. This threshold must not be violated again.
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Deutsche Bank