EURUSD Rally Fades despite progress at EU Summit

 European markets benefited from the European Union (E.U.) summit release about the new pact that will enforce tougher fiscal policies and oversight on participating countries. Additionally borrowing costs lowered in the region. The fiscal pact lessened selling pressures for Italian, Spanish, and Portuguese bonds. Italy’s ten year bond yield reduced to 6.05% while Spain’s lowered to 4.83% and Portugal’s decreased to 16.7%.

 Additional data provides a gloomier outlook. Unemployment in 17 of the European countries rose to 10.0% last month with a similar rate revised for the prior month. Greece reported they made prominent strides in coming to necessary agreements with their private bond holders to reduce the country’s borrowing cost. Still needing completion are the required additional spending cuts of €2 billion (1.0% of gross domestic product) in health and defense areas as well as the lowering of minimum wage. The labor minister George Koutroumanis argues against the wage decrease with the concern it would lower output, harm the poor, and deepen the country’s recession. Yet, officials expect the change to be implemented arguing it would improve job competitiveness. Fear across the Eurozone is palpable as reduced demand has been developing across the region, promoting the likelihood of recession throughout the zone. The Greek Prime Minister, Lucas Papademos reported he expects the country to finalize agreements with their lenders about the €200 billion debt restructuring by the end of this week.

 The United States (U.S.) reported that consumer confidence fell in January. The Conference Board’s confidence index lowered to 61.1 resulting less than analysts had projected of an increase to 68.0. Consumer confidence was revised up for December to 64.8 from 64.5.

The EURUSD came under selling pressure after it hit support at 1.3200. The pair declined over 150 pips on today’s trading and fell below support at 1.3100. The negative sentiment came from Wall Street where consumer confidence lead to the decline in U.S. indices. If the EURUSD closes below 1.3100, the next level of support is seen at 1.3000.