Don't forget that you can now follow Forex.com's research team on Twitter: http://twitter.com/forexresearch

So the day that everyone has finally waited for has arrived. At some stage this evening or in the early hours of tomorrow we expect to get a communiqué that will spell out the details of the third plan this year that is designed to be the ultimate back stop to this crisis and save the Eurozone once and for all.

So how will the markets react? We have been stuck in very tight ranges recently that suggest the markets are getting ready for a big move - but will it be to the upside or the downside? To understand that you need to know what the market expects from today's summit: 1, the amount of extra capital for the banks 2, the new size of the EFSF and details on how it will be leveraged and 3, revised haircuts on Greek debt. It's unlikely that the EU will exceed expectations, so the risk is that we are disappointed by the lack of detail, which causes the euro to sell off sharply and drag stocks and other risky assets with it.

Themes:

 

· The latest on Europe: Italy's government is on the verge of collapse. Berlusconi needs to pass a package of pension reforms to secure further support from Europe. It may require the ultimate sacrifice from Mr Berlusconi - his resignation - in order to get the package passed. But look on the bright side Silvio, more time for Bunga Bunga parties!

· We also know that the wording of the communiqué is causing some concern in Germany; it wants the ECB to commit to more bond purchases in the interim before the leveraged EFSF comes on board, which the central bank wants to avoid.

· We are getting a sense of how the plan will come together. The EU leaders are likely to lay out the broad brush strokes today, leaving it to their finance ministers to fill in the details like the increase in haircuts on Greek debt and the new size of the EFSF. The final, final deadline is November 3rd- at the next G20 meeting, so this saga may drag out for a while yet.

· Market jitters over Europe aren't showing up in EURUSD, which has been comfortably above 1.3900 for most of the last few days, instead they are being expressed in the Swissie and yen crosses. EURCHF fell below 1.2200 today. This is above the 1.2000 floor put in by the Swiss Central Bank earlier this year, but it is perilously close. Perhaps investors are hard wired to buy Swissie when they get nervous, or maybe investors think it is worth trying to test the SNB for 200 pips, either way, the more that EURCHF falls, the more the risk of SNB intervention.

· Central bank intervention is also relevant for the yen, which remains at 70-year highs versus the dollar at 75.80/90. Finance Minister Azumi said that he's watching the outcome of the European summit later and that he hopes it will help to change the trend in the currency market. Two things strike me about this comment: 1, It doesn't sound like a strong commitment to weakening the yen; 2, Azumi may be putting too much faith in Europe's politicians. We would point out that the Japanese authorities prefer to surprise the market when it intervenes in the yen, so watch out as you don't want to be wrong-footed.

· Stocks have opened broadly neutral this morning after yesterday's rout. Although we think the market's chief focus is Europe, in the absence of other news, the market may have been cheered by a statement from Chinese Premier Wen Jiabao that suggests Beijing may be about to loosen monetary policy, reversing its tightening bias. We don't know the details or time frame for this; however he said that support could be made available for small businesses struggling under the weight of tight lending conditions and high inflation.

· Markets have the attention span of a goldfish, and even without the details of Europe's grand plan, it is searching for new themes. The resurgence of growth in the US and Asia could be one. While Europe struggles, economic signals and corporate earnings from the US have improved dramatically. Although consumer confidence remains in the doldrums if Europe's crisis can come to a neat resolution and as holiday season approaches, confidence levels may pick up. It's also worth noting we have some optimal conditions for growth: the Fed is on hold and remains committed to reducing mortgage rates. Added to this China may start to ease policy soon and Australian inflation pressures moderated in the third quarter, reducing the need for any further tightening there, so could we be in for a bright end to the year? Watch this space.

Best Regards,

Kathleen Brooks| Research Director UK EMEA | FOREX.com

d: +44.(0).20.7429.7924 | f: +44.(0).20.7929.2010 | M: +44 (0) 7919.411.957 | e: kbrooks@forex.com| w: www.forex.com/uk

23 College Hill | 3rd Floor | London EC4R 2RT

Now you can follow us on Twitter: http://twitter.com/forexresearch

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that FOREX.com is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. FOREX.com is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.