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Traders will be monitoring the events leading up to Thursday’s Euro Zone summit. They want to see a long term solution to the Greek debt crisis as well as guarantees that someone other than the Euro Zone nations are at risk. The longer these problems exist, the greater the threat to the stability of the Euro. Also, if Greece can not get their bailout, then the debt problems in other countries like Italy and Spain are likely to grow. Fear of contagion is likely to grip the continent, which may cause a sharp sell-off in the September Euro.
The market will focus on the continuing the debate in Washington over spending cuts and increasing the U.S. debt limit. Although the deadline is August 2, traders want to see that progress is being made toward a solution.
The September Euro rose on Tuesday, as bullish traders bullish their hopes on the possible approval of an agreement to resolve the debt crisis in Greece. The Euro rebounded against the Greenback as traders grew confident that a solution would be reached at an emergency summit scheduled for later this week. Traders are waiting to see if a long term solution can be reached in recent years since short-term solutions have failed to eliminate any concerns.
Euro traders seem to have taken the debt issues in Italy and Spain off the table for now. Bond yields for both these countries have risen recently, along with the cost of insuring the debt.
The key to sustaining the developing strength in the September Euro is whether the Euro Zone leaders can complete a deal to give Greece about 110 million Euros. The downside seems to be reaching an agreement involving the private owners of Greek government bonds. Basically, the Euro Zone countries do not want to be the sole support of the entire Greek debt load.
Trading could be choppy leading up to Thursday when the emergency summit takes place. Until then, the September Euro could be vulnerable to a volatile, two-sided trade.
Technically, the charts do not reveal too much. Currently the market is trading within last week’s range. This usually indicates impending volatility, but not direction. A move through 1.4256 is probably a sign of strength. A failure to hold 1.3811 could trigger a downward acceleration.
