The euro paired its losses during the European trading session, continuing to build on slight gains made late yesterday. Supporting the euro were comments from the German finance ministry and German Chancellor Angela Merkel . This afternoon traders will be eyeing developments in the European debt crisis as well as consumer sentiment data from the US.
Comments by German finance ministry spokesman Martin Kotthaus gave the euro a boost when he said a solution to the key elements of the program may be agreed upon on Monday. Beginning on Sunday euro zone finance ministers will meet in Luxembourg with an additional meeting scheduled for Monday where the European elite are expected to hash out a new aid package for Greece. This may include some sort of investor participation as lobbied for by Germany.
Also supporting the euro was a meeting today between German Chancellor Angela Merkel and French President Nicolas Sarkozy. France is aligned with the ECB and is against any restructuring of Greek debt that may trigger a credit event as defined by the major rating agencies. Following Merkel’s comments that she will be willing to compromise with the ECB the euro rallied. However, this doesn’t change the facts on the ground as the ECB has been staunchly against any debt restructuring.
The price action over the past 24 hours may have the effect of shaking out some of the recent euro shorts before the EUR/USD makes another move lower. Initial resistance is found at 1.4320 and a break here would likely test 1.4500 where the euro bears would need to make a stand. To the downside, a move below yesterday’s low of 1.4070 would open the door to May’s low at 1.3970 and the 200-day moving average at 1.3825. The latter of the two options is more likely as today’s euro rebound may be a “dead cat bounce”.
Later this afternoon US consumer sentiment will be released and may be better than expected as a decline in energy prices may have a positive effect on the US consumer. However, the economic data cold pass unnoticed as market players focus on the European debt crisis. Weekend risk is back on the table as all eyes will be focused on the differences between the Germany and the ECB at this weekend’s meeting in Luxembourg.
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