The EUR/USD pair fell for much of the session on Wednesday as the concerns over the drama in that region continue to take the headlines. The markets will run to the Dollar as long as the Europeans cannot get it together and judging by recent action – this could be a while. However, late in the US session, there was a joint statement by the French and Italian leaders that they were united in their desire for a “Eurobond”, which would be a bond that is backed by the whole European Union. The Spanish were kind enough to lend their support as well.
As I heard this, only two words could come to mind: “wishful thinking.” This essentially means that the broke nations are united in their desire for a handout from the fiscally responsible nations like Finland, Germany, Netherlands, and the like. In other words, this is a lot like your broke neighbors being united that you should cosign for their auto loans if you have great credit. There is a lot of rhetoric coming out of the richer nations that this isn’t going to happen, and as they have the money – it won’t. Merkel will not be reelected if she caves in on this, and she knows it.
1.25 tested
Ok, so we didn’t quite hit 1.25, but we came awfully close during the session. The triangle from two weeks ago measured a move down to 1.25, and for my money we have come close enough. At this point, there has been a short covering rally as the European leaders will be announcing the result of their meeting. There is more “hopium” in the markets, and there will more than likely be more disappointment. In other words, I like to fade this rally.
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The announcement is more than likely going to be the signal. If there are no recapitalization of the banks, and no Eurobonds – this pair falls right back down. There shouldn’t be either, so I am a seller in general as the problems in Europe are far too complex for the leaders to get together. I am looking for the typical “We have agreed to talk later” announcement and a falling of the Euro as a result.