Forex:Euro Treads Water Ahead of EU Summit

Euro continues to tread water as markets are awaiting the EU summit later this week. German Chancellor Merkel will meet with French President Hollande today in preparation of the two-day EU summit in Brussels on Thursday and Friday. Merkel was blunt in her rejection of Eurobonds and said yesterday that she doesn't see "total debt liability" as long as she lives. And, her spokesman Seibert reiterated today that "even within Germany after 60 years there isn't joint liability", and Merkel doesn't see it in Europe either. Yesterday, US rating agency cut Germany's rating to A+ from AA-.

Spanish Prime Minister Rajoy warned that the country "can't finance at current prices for too long" and there are institutions that have "no market access" in Spain, Italy and other countries. He said Spain is "going through a very difficult economic situation" and need "strong measures from Europe". Rajoy pledged to push for banking and fiscal union in this week's summit. Meanwhile, Economy Minister de Guindos said that EC President Van Rompuy's outline of banking union will be discussed at the summit.

Italian Prime Minister Monti won the first two of confidence votes yesterday on labour reforms. The final two votes are due today. Italy sold EUR 9b in 6-month bills today with up jumped to 2.96%, up from 2.10% in May's auction. Italian treasury will try to sell as much as EUR 5.5b in 5- and 10-year bonds tomorrow.

ECB said it allotted EUR 26.295b to banks in the region at its three-month refinancing operation. 50 banks bid for the funding, comparing to 33 participated in last operation in May. That's a slightly higher amount comparing to the EUR 25.13 b in three months funds maturing later this week. And, around EUR 1b of net rise in liquidity would be resulted. Meanwhile, there are speculations that since ECB won't restart the bond buying program, the central bank might opt for a rate cut next week.

On the data front, US durable goods orders rose more than expected by 1.1% in May while ex-transport orders rose 0.4%. Germany CPI dropped -0.1% mom in June and moderated to 1.8% yoy. UK BBA mortgage approvals dropped to 30.2k in May while CPI reported sales improved to 42 in June. New Zealand trade surplus came in at NZD 301m in May, inline with expectation.
(actionforex.com)

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