Until now, leaders where able to cover most of the subjects awaited by investors, yet markets rebounded on the news that European leaders agreed to drop the private-sector involvement in bailouts for European indebted nations, while China supported the optimism to prevail as Reuters reported that China's Central Bank is to create a new vehicle to manage investment funds of $300 billion in European and U.S. markets.
European leaders agreed to drop the private-sector involvement in bailouts for European indebted nations, as Germany has finally agreed to step back from demanding investors to share the cost of bailouts, which led the debt crisis to worsen and deepen further.
The decision from Europe leaders supported the euro to ease the losses and also China was a main support for the rebound against the U.S. dollar, where optimism spread in the market that investors are not going to share the cost of bailouts for European indebted nations yet likley the rally will not last long.
The euro extended the gains on the news that the Chinese Central Bank will create an investment vehicle worth 300 billion euros, where this vehicle aims to seek for higher return on Chinese funds, yet it will help to provide financial stability in Europe and the U.S. especially when the vehicle was split into two funds, as the first one would be named Hua Mei, or Chine-US, while the other one will be named Hua Ou, or China-Europe, for investments in European markets.
The EUR/USD pair after the opening of $1.3339, reversed to the downside as markets was disappointed over the European Summit temporal results, where the pair reached a low of $1.3280. The pair however rebounded to the upside after European leaders agreed to drop the private-sector involvement in bailouts along with the upbeat news from China, which supported the pair to set a high of $1.3433, noting that the pair trades now around $1.3389.
European leaders agreed yesterday to expand the support provided for the International Monetary Fund (IMF) by an additional 200 billion euros, while the European Financial Stability Facility is expected to be rapidly deployed, in the time the ESM will run as a rescue fund with an expected firepower 500 billion euros.
On the other hand, the package of changes to the EU treaty was opposed by some nations, which in result led European leaders to come up with an intergovernmental treaty, which will include the 17 euro-area nations in addition to any EU nation that would like to join, where this treaty will become now the key solution to resolve the escalating debt crisis. In addition, European leaders also agreed to toughen budget rules.
Pessimism was seen in the market after the European Banking Authority relinquished any hope for stability or hope for it after the EU summit, where the Authority raised the estimates for the needed capital by banks to 114.7 billion euros from 106 billion euros, as Europe attempts to raise the core Tier 1 capital ratio to 9% by mid 2012; however, markets rebounded after the news that China will invest in European and U.S. markets.
Intraday Technical Point of View
An intraday double bottom formation over the hourly interval sent theEUR/USDpair higher after the neckline of the pattern was breached at 1.3370 to test areas around 1.3430, where it was rejected to trade currently below 1.3400 mark, the 100-period moving average over four-hour basis is also forming a resistance around 1.3400, in addition to descending resistance of the minor channel, all illustrated on chart.
Downside pressure could resume soon, but we prefer trading to settle below 1.3400-1.3425 as a four-hour closing above 1.3425 shall extend the current trading range further to the upside toward 1.3500. To the downside a retest of the breached 1.3370 is in hand, while breaching 1.3360 again could open the door toward the lows around 1.3290 again.