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Fundamental Headlines

Credit Agricole, Societe Generale Ratings Cut – Bloomberg

Pessimism Rises as 72% See U.S. Economy on Wrong Course – Bloomberg

Asia Corporate Sentiment Slides on Global Worries – Reuters

Merkel Lessens Fears Over Greece – WSJ

U.S. Futures Jump – WSJ

European Session Summary

The Euro continued its bid higher on Tuesday after it became clear that the markets were not going to be dealt a severe blow by an imminent Greek default. The past several days it appeared that Greece has been on the verge of defaulting on its debt, as evidenced by soaring bond yields. In fact, the 1-year Greek government bond is now trading at 138.977%, below the incredible 148.897% high yield established earlier in the day. Such high yields suggest that markets remain unconvinced that Greek can pay off its loans in the near-term.

Despite what bond markets are indicating, German Chancellor Angela Merkel continues to grasp for straws as she tries to save the Euro-zone. Chancellor Merkel said she thinks “we will do Greece the biggest favor by not speculating much, but instead encouraging Greece to implement the commitments it has made. What we don't need is unrest in the financial markets—the uncertainties are already big enough.” Similarly, in order to help Greece and other indebted nations, European Commission President Jose Barroso said “the commission will soon present options for the introduction of euro bonds.” Euro bonds would require some semblance of fiscal unity in the Euro-zone, a major (and difficult) step forward.

EUR/USD 1-minute Chart: September 13, 2011

Euro_Firms_as_Merkel_Reassures_Market_on_Greek_Finances_body_Picture_1.png, Euro Firms as Merkel Reassures Market on Greek Finances

Charts created using Strategy Trader– Prepared by Christopher Vecchio

The reaction to the news has been bullish in the short-term for the Euro even as it remains range bound. The common currency was sunk headed into the weekend as markets began to prepare for a Greek default. Reports emerged late last week that Germany was putting a contingency plan together for its banks on how to react to a Greek default. Soon after 14:00 GMT on Wednesday, Chancellor Merkel will conclude a joint conference call with French President Nicolas Sarkozy and Greek Prime Minister George Papandreou, a signal to the markets that the core Euro-zone remains committed to the periphery.

Thus far, on Wednesday, the Dow Jones FXCM Dollar Index is higher, trading at 9768.52, at the time this report was written, after opening at 9740.28. The index has traded mostly to the upside, with the high at 9806.96 and the low at 9729.22.

24-Hour Price Action

Euro_Firms_as_Merkel_Reassures_Market_on_Greek_Finances_body_Picture_4.png, Euro Firms as Merkel Reassures Market on Greek FinancesEuro_Firms_as_Merkel_Reassures_Market_on_Greek_Finances_body_Picture_5.png, Euro Firms as Merkel Reassures Market on Greek Finances

Key Levels: 13:15 GMT

Euro_Firms_as_Merkel_Reassures_Market_on_Greek_Finances_body_Picture_6.png, Euro Firms as Merkel Reassures Market on Greek Finances

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to:

Follow Christopher Vecchio on Twitter: @CVecchioFX