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Intense negotiations over the weekend in Brussels haven’t yielded significant progress. There is still a lot of work towards Wednesday’s summit, and hope for a comprehensive solution is fading.

EUR/USD started the week with a gap of 50 pips lower over this disappointment. Update.

Angela Merkel, Nicolas Sarkozy, Christine Lagarde and many others made little progress. The only agreement that was reached was a demand for bank recapitalization of 100-110 billion euros. This isn’t sufficient.

Partial progress was made around the Greek haircut: banks are now willing to accept a 40% haircut, almost double the 21% agreed on July 21st. The IMF and Germany still demand more: 50% to 60%. France opposes.

The biggest issue remains the leveraging of the EFSF: France wants to use the ECB and has gained support from many countries. The ECB and Germany still oppose it strongly.

Another summit is scheduled for Wednesday in Brussels. Here are more details about the agreements, disagreement, and what needs to be done.

Mind the Gap

EUR/USD started the week in Wellington and Syndey at around 1.3835, more than 50 pips lower than the close of 1.3894 on Friday. It began rising, but is still far from filling the gap. This is a mild reaction, as there’s still hope for Wednesday’s summit.

If this gap remains open until the Tokyo open at midnight GMT, more pressure awaits the euro. If this gap is closed, sideways trading is more likely.

For technical lines, events and more, see the EUR/USD forecast.

Monday morning in Europe will see the release of Flash PMIs. Purchasing managers’ indices will likely reflect more economic weakness and a growing chance of recession.

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