By: Christopher Lewis
With the upcoming EU summit at the end of the week, there is potential for massive moves in the Euro following any announcement from that meeting. The past year or so has seen several potentially important meetings, but with the S&P ratings agency stating that if there is no agreement of substance after this meeting there will be downgrades – all of the sudden the stakes are much higher.
In a situation like this, it is common for the reaction to be across the board. If the Europeans finally come up with a solid solution, this will undoubtedly be bullish for the Euro in general as it would lift a lot of the burden in the short term. Of course, it won’t be all roses, as the EU is more than likely going into recession, but at least the worst case scenarios would be off the table. With the markets heavily short Euros there would be a massive pop in several of the Euro-centric pairs.
Looking at the EUR/USD, the pair has been bouncing around just below the 1.35 level and would more than likely shoot straight back through that level again. The 1.40 level above would be massive resistance, and we should see a higher area of consolidation between the 1.35 and 1.40 levels as the excess concerns are washed away.
The EUR/CHF pair has seen massive resistance at the 1.25 level lately. This critical level could give way with good news as the Swiss are working against the value of the Franc to begin with. The Swiss National Bank has stated that the “floor” of the pair is 1.20, and as a result the pair has been hovering above that level for some time now. Once the 1.25 gives way on optimism, the floodgates open, and we could eventually see a return to the old trade of buying the Euro and selling the Franc. However, the move up won’t be like it used to be, and more than likely a bit on the choppy side as the economies involved are in much different shape than in 2006 when buying this pair was the norm.