The euro was felled by the double whammy of bearish rhetoric from German officials ahead of the summit and negative employment data, dropping more than 100 points in morning European trade. A German government source stated that EU summit will not produce any detailed decisions but will instead try to establish a long term road map for further European integration.
By extinguishing any hope of immediate policy action, the Germans sent the euro tumbling as market expectations of the summit sunk to a new low. The fall in the pair was exacerbated by weak German jobless data with unemployment rolls rising by 7K versus 4K eyed. This was the third consecutive month that German unemployment has increased suggesting that the European economic slowdown is now moving from the periphery to the core.
The EUR/USD dropped more than 100 points off the session highs, hitting a low of 1.2407 before finding some support. The pair is likely to remain under pressure as the EU summit begins today with market sentiment now highly negative that policymakers will produce any meaningful coordinated action to combat the growing credit crisis in southern Europe. The short will eye the 1.2400 level as the first test of support with year to date lows near the 1.2300 figure looming as key point of attack if the summit ends in a complete disappointment.