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FOREX: All Eyes on Merkel, Sarkozy Meeting Ahead of Key EU Summit

FOREX: All Eyes on Merkel, Sarkozy Meeting Ahead of Key EU Summit

2011-12-05 08:33:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points

  • All Eyes on Merkel/Sarkozy Meeting as Traders Build Outlook for EU Summit
  • Euro Zone, UK PMI Figures Unlikely to Have Lasting Impact on Price Action
  • US Dollar Vulnerable as S&P 500 Futures Rise, Optimism May Prove Fleeting

Currency markets were little changed in overnight trade, with the majors locked in narrow ranges against the US Dollar. All eyes are looking ahead to the EU leaders’ summit beginning on Thursday as the markets wait to see if policymakers are finally able to concretely address the Eurozone debt crisis. While outright optimism will be hard to come by considering the long history of failed “comprehensive solutions” already in the history books – the latest one unveiled as recently as late October – investors seem unwilling to commit to a directional bias until the sit-down’s final outcome crosses the wires. For now, this appears to be producing an uneasy stalemate, with markets carefully monitoring the headlines for any clues on how the summit may play out.

Over the coming day, this puts the spotlight on a preliminary meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy, where the leaders of the EU’s top-two economies will try to hammer out a joint position ahead of the summit. A press conference after the meeting has not been confirmed as yet, but some headlines are almost certain to emerge, in the worst case familiarly attributed to anonymous “people familiar with the conversation”. Most critically, traders will be looking for a reading on the progress toward a compromise arrangement floated toward the end of last week that envisions establishing the roadmap to deeper integration and a firm commitment to follow it (a German imperative) followed by a larger-scale ECB bond purchase program to relieve immediate upward pressure on borrowing costs (a French objective).

On the economic data front, the docket is relatively quiet. The final revision of November’s Euro Zone PMI composite reading is expected to confirm the manufacturing and services sectors shrank for the third consecutive month. Meanwhile, UK Services PMI is forecast to reveal the slowest pace of non-manufacturing growth in 11 months. On balance, economic slowdown in Europe is hardly news and absent major deviations from expected outcomes, the data’s impact on price action seems unlikely to prove lasting. Sizing up sentiment trends, S&P 500 stock index futures are pointing to higher, suggesting the greenback may find itself on the defensive amid sagging safe-haven demand, but the outcome of the Merkel/Sarkozy meeting could dramatically alter the landscape in the hours ahead.

Asia Session: What Happened

GMT

CCY

EVENT

ACT

EXP

PREV

21:45

NZD

Value of All Buildings s.a. (3Q)

-2.3%

-

-6.2% (R+)

22:30

AUD

AiG Performance of Service Index (NOV)

47.7

-

48.8

23:30

AUD

TD Securities Inflation (MoM) (NOV)

-0.1%

-

0.1%

23:30

AUD

TD Securities Inflation (YoY) (NOV)

2.1%

-

2.6%

23:50

JPY

Loans & Discounts Corp (YoY) (OCT)

-0.8%

-

-0.7%

0:01

GBP

Lloyds Employment Confidence (NOV)

-75

-

-72

0:30

AUD

Company Operating Profit (QoQ) (3Q)

4.8%

3.0%

7.3% (R+)

0:30

AUD

Inventories (3Q)

-1.1%

1.2%

1.6% (R-)

0:30

AUD

ANZ Job Advertisements (MoM) (NOV)

0.0%

-

-0.6% (R+)

2:30

CNY

China HSBC Services PMI (NOV)

52.5

-

54.1

Euro Session: What to Expect

GMT

CCY

EVENT

EXP

PREV

IMPACT

8:45

EUR

Italian PMI Services (NOV)

44.1

43.9

Low

8:50

EUR

French PMI Services (NOV F)

49.3

49.3

Low

8:55

EUR

German PMI Services (NOV F)

51.4

51.4

Medium

9:00

EUR

Euro-Zone PMI Composite (NOV F)

47.2

47.2

Medium

9:00

EUR

Euro-Zone PMI Services (NOV F)

47.8

47.8

Medium

9:30

EUR

Euro-Zone Sentix Investor Confidence (DEC)

-21.0

-21.2

Low

9:30

GBP

PMI Services (NOV)

50.5

51.3

Medium

9:30

GBP

Official Reserves ($ ) (Changes) (NOV)

-

1387M

Low

10:00

EUR

Euro-Zone Retail Sales (MoM) (OCT)

0.1%

-0.6%

Medium

10:00

EUR

Euro-Zone Retail Sales (YoY) (OCT)

-0.8%

-1.4%

Medium

12:30

EUR

Merkel, Sarkozy Pre-EU Summit Meeting

-

-

High

Critical Levels

CCY

SUPPORT

RESISTANCE

EURUSD

1.3320

1.3619

GBPUSD

1.5541

1.5782

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow me on Twitter at @IlyaSpivak

To be added to Ilya's e-mail distribution list, send a note with subject line "Distribution List" to ispivak@dailyfx.com

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