Overnight, EUR/USD rallied to a high of 1.3869 before the bears came out to play, pushing the single currency down to a low of 1.3732.
Confusion reigns supreme ahead of one of the most important weekends in financial markets for a number of years, with traders trying to understand the ramifications of how EUR/USD may trade if european leaders don't hit the mark. As it stands, there really are no clear signs out there, however we would advocate (from a risk/reward perceptive) potentially selling above 1.39 and buying below 1.36 until the market gets a firm grip on the measures at hand. IMF Managing Director Mrs Lagarde, ECB President Mr Trichet, French President Mr Sarkozy, and German Chancellor Mrs Merkel met for emergency talks in Frankfurt overnight, although from all accounts, the market hasn't learnt anything new.
Interestingly, the Financial Times reported that the size of the re-capitalising plan is likely to be around EUR 70-90 billion, of which they would be given around nine months to raise this total. This is substantially less than the EUR 250 billion analysts had previously suggested, and if it calculated off banks having a tier one ratio of 9%, then it should be considered positive. In the short term though, the uptrend that has been in place from October 4 looks like it is under threat, which could suggest a counter trend. However, we would not put a lot of credence on that given it is a headline-driven market, and the next release could be announced anytime. Tonight's German producer prices may get some mention, as will eurozone consumer confidence, however as previously mentioned, currency traders are watching one thing only and that is Europe and whether it can conjure up something that keeps the bulls happy.