As we prepare for the EU summit, we can see that the market has been putting on some risk this week. The EUR/USD however shows a bearish bias.

Here is a look at the S&P 500 futures. It has been rallying so far this week after falling from last Wednesday’s high of 1356.85. This reflects the market not wanting to be too pessimistic ahead of the EU summit.

Some data today, and notes for the EU summit:
- US Durable goods data for May were mixed, with the headline reading coming in at 1.1%, beating the 0.5% forecast and previous reading of -0.2%, which was revised from 0.2%.
- However, the core reading, excluding transportation items came in 0.4%, missing forecast of 0.9%, but is still higher than the -0.6% in the previous month.
- US pending home sales in May did surprise with a 5.9% gain, beating forecast of 1.2%, and rising from April’s -5.5%.
- These are still second tier compared to the risk event from the EU summit

EU Summit:
-A Financial Times article lists a number of issues on the table, the last two of which are long-term as opposed to the rest of which are short-term

• Direct recapitalization of banks (specifically Spanish), using the ESM.
• Giving ESM access to the European Central Bank.
• The seniority rule for the ESM funds which gives sovereigns claims to the debt before private bond purchasers. Removal can help buying from the private sector, but obviously at the expense of creditor nations’ protection from losses.
• Provide central supervision of banks as part of the deal to recapitalize banks using the ESM.
• Consideration of extending quantitative easing, or bond-purchase programs.
• Moving on the growth pact that politicians such as France’s newly elected President Hollande, have promised.
• The long-term goal of reaching a banking union starts with some of the aforementioned short-term initiatives. Eventually the idea is to break the link between sovereigns and their banks, and to share liabilities across the eurozone.
• The sharing of liabilities is proposed through eurobonds and eurobills, which would lower borrowing cost of nations with bad credit rating, but would also increase the borrowing cost of nations with good credit standing like Germany. Obviously Merkel is adamantly opposed, saying this will materialize as long as she was alive.

EUR/USD has been tilted downwards this week, unlike the SP500 chart which anchored to the upside. This decoupling shows that the market is more pessimistic about the euro than risk in general. Still it is flattening out as we gear up for the summit.

I expect a volatile 6/28 and 6/29 session to end the week. Initial breakouts from intra-session trendlines and support/resistance pivots might be meaningless because the breaks can just be a result of increased volatility. However if we form a consolidation pattern during the EU summit (which is likely wider than the 1.25-1.2430 range set up in the 6/26-6/27 session) , a break from that would be an important clue.

Fan Yang CMT is the Chief Technical Strategist, currency trader, and the main contributor to FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.