E.U. In Crisis

The EUR broke lower in trading on Thursday as the press conference with ECB President Mario Draghi took place. The ECB had already cut their interest rate, but Forex stayed calm, however upon Draghi’s talk about a tough growth cycle facing Europe, the EUR began to tumble to new lows. Today the E.U. summit news will take over and actually it has already begun. French leader, Sarkozy, kicked off an early morning news conference today trying his best to put a good foot forward. However David Cameron, the U.K. leader, took the podium about an hour later and basically nullified many of the ideas that had essentially been proposed for the European Union. The U.K. essentially, led by Cameron, has now stated that it wants nothing to do with the EUR and will not be part of a fiscal union in which mandates cannot be debated nationally first.

The broad markets were quite cautious until the European afternoon on Thursday. But as news started to emerge from the ECB press conference, investor sentiment began to crack under the pressure that the E.U. seemingly is not about to reach a conclusive agreement anytime soon that will provide clarity. What does appear clear is that Germany and France are becoming somewhat desperate to make structural changes to fiscal mandates in order to save the Euro zone. However, political factors are weighing heavily on proposals and the ‘split’ with the U.K. over a working agreement appears to be growing. Correct, it must be noted the U.K. is not part of the Euro zone and maintains its own currency. However, noteworthy is that the U.K. is part of the European Union and therefore has a voice in the way the political union is maintained. What we may have seen this morning via Sarkozy and Cameron is the beginning of a serious crack in the policies of the European Union and a sign that any type of agreement for the E.U. will be piecemeal.

The news from the European summit is likely to continue today and its ramifications will likely bring political and economic officials towards the microphone all weekend long. Equity markets reacted nervously to yesterday’s developments via the ECB and they may carry on with nervous trading today. Gold has fallen to around 1705.00 USD as of this morning. The strength of the USD as a safe haven asset continues to seemingly build momentum and the concerns about taking positions into what could be a heavy news weekend will likely sustain those who are looking to merely preserve capital.

There has been some economic data, yesterday the States released weekly Unemployment Claims and the numbers was a little better than expected. Today the U.S. will present Trade Balance figures and a Preliminary Consumer Sentiment reading from the University of Michigan. Some investors may take a peek at the results from these statistics, but it should be clear that the European crisis is roiling investor sentiment. The broad markets remain fragile and traders who have the stomach to embrace short term trends and practice risk management will find opportunity.

Investors are certain to ask tough question today and over the weekend regarding the European saga. How will the S&P react to what has thus far been a less than productive E.U. summit?  This after the S&P warned the Euro zone earlier this week to get their house in order. Equities should be used as a barometer today, and the bond markets must be watched too regarding yields which will likely face tests.