EUR/USD Will Move Higher After Leaders Meet

EUR/USD is currently around the 1.2670, little moved to the downside from the starting price in the Asia-Pacífic about 10 pips higher. The pair resumed the risk-off sentiment settled in the market after ex-Greece PM Papademos suggested Greece might exit the EZ, by late NY, hitting a fresh weekly low ahead of Hong-Kong open at 1.2644.

Local share markets trade in the big red, losing on average more than -1%, and gold also selling off to fresh lows last at $1560. US 10y yields hold around 1.78%, while German one does so at 1.45%. BoJ made no changes in its monetary policy.

The London session ahead comes soft on EUR macro data related, but busy on possible headlines coming out from the meeting to be held on Brussels along the European morning, with debate on eurobonds in the agenda. EU current account will be published at 09:00 GMT, with EU industrial new orders tentative. Instead, the UK will have plenty of key macro data, including retail sales at 08:30 GMT, which probably will bring volatility to EUR/GBP cross.

There is also German sovereign debt auctions for today around 06:00 GMT, with two-year zero coupon to be issued for the first time, according to the WJS, “The German federal government Tuesday set a zero coupon on a new issue of two-year federal treasury notes, or Schatz. Germany will auction €5 billion of the two-year note on Wednesday.”

Also today EU officials should continue talks on the creation of eurobonds. French President Francois Hollande, backed by Italian Prime Minister Mario Monti and British Prime Minister David Cameron is expected to pressurize German Chancellor Angela Merkel to cease her opposition in this respect.

The issue of eurobonds is once again high on the agenda, as many consider it to be the best way to combat the crisis and regain market confidence, especially in the light of the recent deterioration of the political situation in Greece and the increasing possibility of the country's exit from the eurozone.

Greece will also receive 18 billion euros of recapitalization funds for its four largest commercial banks: Alpha Bank, National Bank of Greece, EFG Eurobank and Piraeus Bank.

The funds, in the form of EFSF bonds, should be supplied by Friday at the latest and allow the banks to once again take part in ECB's liquidity operations, from which they were excluded last week. Greek banks saw a large part of their capital disappear this year due to losses made during the debt swap.

Earlier on Tuesday Financial Times also informed that the Greek Central Bank has injected 100 billion euro into the country's banking system, in a discreet operation authorized by the ECB. The financing was done through the Emergency Liquidity Assistance (ELA), which is a tool outside of the ECB’s refinancing operational framework, used for dealing with the financial crisis.

Support for EUR/USD to the downside show at recent session and weekly low 1.2644, followed by Friday's lows at 1.2641, and 2012 lows January 13/16 at 1.2625. For the upside, closest resistance comes at recent session highs 1.2685, followed by Monday's lows 1.2725, and past Wednesday's highs at 1.2752.