The EU summit was making some breakthroughs in the all-night discussions leading to the second day at the roundtable.
1) Euro leaders agreed to open funds without austerity measures - for direct capitalization of troubled banks to well-behaved nations. 2) Bloomberg headline: Euro Rises After EU Leaders Renounce Spain Loan Seniority. 3) Bank union to be under single regulatory body instead of 17. This is a long-term plan, but the euro leaders want to start coming up with the plans now.
After the first day of bickering to negotiate terms, EU leaders are coming together and making some key steps toward saving the European Union. The markets reactions also reversed from risk-off mode to risk-on mode. There is a feeling that this move has more legs because it is somewhat of a positive surprise and the market has put confidence in eurocrats and bank leaders to provide hope. Naysayers will see this as just a puff of hopium, but it is likely a very potent one. Still, let's see if the summit can end on this good note.
The S&P 500 rallied sharply. In the 4H chart, the market now looks sideways to bullish in June. The 1356.86 high will be a challenge to see if the market has faith in the leaders to make good on their agreements to the new short-term and long-term solutions. A break can open up th market toward the 2012 highs around 1418.
S&P500 4H chart 7:36AM EDT 6/29/2012
Risk-on trading pressures the USD and we saw the EUR/USD spike up to 1.26 during the pre-European session and has sat around there and consolidated during the European session with a low of 1.2550. If the US session participates and extends the spike beyond 1.2665, it will be interesting to see if the market can push above the 1.2744 June high.
A break above 1.2750 opens up 1.2820 pivot in the short-term. The bullish outlook should be limited to 1.30 for now.
EUR/USD 4H chart 7:30AM EDT 6/29/2012
Commodity Currencies Strengthen
While the Euro did rally against the USD and JPY, the CAD, AUD, NZD commodity currencies did even more damage. Overnight USD/CAD fell from 1.0360 down to the 1.0215 area heading into the 6/29 US session. The next support pivot below the 1.02 psychological level is in the 1.0150-1.0160 area. Below that a very key pivot that was resistance from January to April resides in the 1.0050-1.0060 area.
USD/CAD 4H Chart 7:40AM EDT 6/29/2012
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