Trading Plan Ahead of the EU Summit

EU finance ministers’ summit cancelled on Wednesday but the EU leaders summit is still expected to take place.

Disappointing US economic releases have supported the risk-on currencies; Richmond Manufacturing Index came in at -6 while it was expected at 2, thus making it the fourth negative month in a row. CB Consumer confidence printed a deceiving 39.8 while it was expected at 46.1 making another low since the February 22nd number (70.4). On the other hand the BoC (Bank of Canada) kept the interest rates unchanged at 1% which was pretty expected but some comments made the Canadian dollar plunge;

-The BoC cut its growth outlook for its economy
-The BoC didn’t mention the removal of the stimulus in its report
-Inflation will also be slower than earlier forecast

Once the statement was out, the USD/CAD rose by 220 pips in less than 2 and half hours, taking out all the gains the CAD made the last two days. The USD/CAD reached our upward H4 channel support to retrace up just in time.

But, today, we’ll be more interested on what will come out of the European continent. Merkel sent the rescue fund to be approved by the parliament ahead of the summit. The bill is expected to pass as a deal was made with the position Social Democrats and the Greens.  As a trader, you surely heard that an EU finance ministers’ meeting set for today was cancelled. Markets didn’t respond accordingly because all eyes are set to see what’s coming out of the EU summit today. Most probably, the different EU countries haven’t reached a final agreement on how Greece’s debt will be restructured, thus making it very hard to determine the size needed for the bail-out. Three scenarios can be expected ahead of the meeting:

1-No final and detailed deal; this kind of disagreement would be covered by announcing more meetings so that the markets doesn’t punish them.
2-A deal less than a trillion EUR, would be very deceiving for market participants. But, we would be promised of an addition of this bail-out fund in the near future.
3-A deal over a trillion EUR, would make market participants feel that EU leaders are working seriously for a solution.

Despite all the scenarios listed above, you can expect the euro to go up on a first reaction. As I’ve been saying for over 2 weeks now, a lot of stops are laying above 1.4000/1.4100 in euro and they need to get triggered. On the other hand, and once the storm calms down, market participants will read the plan carefully and would most probably express their thoughts on how the deal will not save neither Greece nor the other EU countries at risk. A market crash would be expected in this case. Despite everything, trading should be forbidden as the risk is very high today. It would be better to wait for the news to come out and market participants and you (as a trader) to take your time analyzing the deal before jumping into the market.

Trading plan: As risk is very high, there’s only one way to trade today; it simply consists of shutting down your computer and have fun with your family or friends. It’s not worth it to be exposed to the high risks for few profits… if you are lucky!