It is an exceedingly quiet morning in the foreign exchange market with directionless trading in most of the major currencies. The lack of meaningful economic data has traders counting down the hours to the EU Summit. Durable goods orders in the U.S. rose 1.1 percent last month on higher defense and nondefense aircraft orders. While this increase was larger than expected, excluding transportation, durable goods orders rose by only 0.4 percent. Orders for products made to last more than a few years tend to be volatile and is usually not a big market mover for the U.S. dollar but after 2 months of negative durable goods orders, today’s report will contribute positively to growth. Later this morning, U.S. pending home sales will be released and a small rebound is expected after the sharp decline in April. Two months ago, pending home sales fell by the steepest amount in 12 months. However the more important event risk today will be the statement released by German Chancellor Merkel and French President Hollande.

The leaders of the 2 largest economies in the Eurozone are meeting on the eve of the EU Summit to “exchange views” and define their positions ahead of the meeting. Unfortunately we expect more head butting than agreement at the working dinner given Merkel’s consistent opposition to shared liability. Although there won’t be any table slamming and food throwing, expect the discussion to get heated because Hollande is a Europe’s main supporter of Eurobonds and Merkel is staunchly against them. Don’t expect much from the Merkel-Hollande dinner. Every opportunity that she had this week including this morning, the German Chancellor made it clear that the focus on mutualizing debt is misplaced and that Eurobonds would be counterproductive. This view is widely shared in Germany with Deputy Parliamentary Leader Meister confirming that shared control or authority must come ahead of shared liability. In other words, the Germans won’t relent on sovereign credit risk sharing unless other nations give up some sovereignty, which is something they are not prepared to do. As a result, the EUR/USD remains under pressure ahead of the meeting.

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