Euro edging back to technical abyss – for good reason

More John J Hardy, 6 hours ago12 December 2011 Non-Independent Investment Research A look at three interesting Euro crosses as the EU summit once again is unable to instill confidence. We also look at the highlights for the week ahead on the economic calendar, which is a busy one this week.

I won’t spend much time on the EU summit today after our posts and video on Friday and after our Chief economist’s Steen Jakobsen’s chronicle today, but suffice it to say that I am surprised at just how rapidly the market is losing faith once again, even as we have outlined the many reasons that this summit failed to provide any longer term solution. As Steen points out in his piece, one of the more interesting developments from last week’s process has been the degree to which Cameron has distanced himself and the UK even further from the EU core represented by Merkel/Sarkozy and the degree to which the market is nodding its approval of Mr. Cameron’s actions (and the benefit to the UK financial sector – its biggest asset – as the UK will never go forward with a the Financial Transaction Tax so many EU politicians are going on about.)

Chart: EURUSD
The EURUSD hardly gained much in anticipation of the summit (likely largely due to the fact that any solution was perceived to involve a much easier stance from the ECB, even if it also provided some relief on), though sovereign debt spreads improved quite dramatically. Now, EU credibility is perhaps in worse tatters than ever before and spreads are blowing back wider. The result is a EURUSD pressing at the lower end of the range and threatening to reach levels not seen since January of this year if the 1.3150 area early October low is taken out. Consider that the S&P 500 was trading well below 1100 when that low was posted while this time around, it is not  more than a few percent from 4-month highs. If we ever get broad based risk off again, a charge to 1.2500 might be in the cards in the weeks ahead.