EU summit takes center stage
European leaders begin a two-day EU summit from today, aimed at strengthening ties between the European master-payers and debt-stricken economies, so that the region’s debt crisis can be perceived to have a solid ‘roadmap’ to recovery. EU leaders will also discuss measures to invest more in growth. At this point, the market is expecting very little substantial progress.
The EU summit comes at a juncture in which markets have remained unsurprisingly calm, with a Spain bailout request, so that the ECB can activate its OMT (Outright Monetary Transaction) to start the purchase of Spanish bonds. Spanish PM Rajoy is still considering his options and is expected to wait at least until after regional elections on Oct. 21 before applying for aid.
However the markets remain nervous about Greece, where the government and its international creditors are still under tense negotiations so that the next aid disbursement for the bankrupt country can be unlocked. Evidence is mounting that the country will be given an extra 2-year concession to meet initial targets, since the austerity programs are way off track. On the other hand Greek workers have walked off the job for the second time in three weeks on Thursday, hoping to show EU leaders that a new wave of wage and pension cuts will only worsen their plight after five years of recession.
On the FX market, GBP/USD was supported throughout the session by broad based risk sentiment, as well as the release of rather “hawkish” minutes from the BoE and an encouraging jobs report from the UK. The minutes revealed a degree of hesitation among the MPC to boost the APF and there is growing uncertainty as to how effective another round of purchases will prove. In terms of technical levels, supports are seen at 1.6075 and then at 1.6015. On the other hand, resistance levels are seen at 1.6220 and then 1.6277
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