EUR/GBP: Euro In For a Crucial Week

The Euro posted gains versus the Great British pound after European Central Bank President Mario Draghi announced buying bonds at unlimited quantities to be able to address severe distortions in government bond markets. In today’s European trading exchanges, the single currency is likely to weaken as the ECB’s resolve to contain the debt crisis could be derailed awaiting the crucial decision of the German Constitutional Court on the issue of the European Stability Mechanism’s legality.

Despite the ECB’s move gaining an initial positive reaction from the markets, the shared currency is seen to come under pressure in today’s European trades on concerns about Greece, and the looming decision of the German court. Greece re-enters the spotlight as the coalition government failed to agree on spending cuts required by its international creditors. Greek Prime Minister Antonis Samaras, Pasok’s Evangelos Venizelos and Democratic Left’s Fotis Kouvelis, did not meet on the issue of across-the-board cuts in pensions and wages. The leaders instead opted to meet again on Wednesday. But prior to such meeting, Samaras would meet with the Troika’s representatives today, and with Draghi tomorrow.

Also due on Wednesday is the crucial decision of the Federal Constitutional Court in Karlsruhe on the ESM’s legality. Germany is the top contributor to the Euro Zone’s bailout fund, and an adverse decision is expected to disrupt efforts of the ECB and the European leaders to extend financial help to troubled Euro Zone economies. Today, economic fundamentals are seen to push the single currency lower than the Cable. French Industrial Production is expected to drop by 0.5 percent in August, while Sentix Investor Confidence is projected to go down for a sixth straight month to -30.4 points in September. Considering the foregoing factors, a short position for the Euro-Pound pair is recommended in today‚Äôs European exchanges.

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