Investors have been given a glimpse into the EU summit...but a lot of questions remain unanswered

By Chris Tedder, Research Analyst FOREX.com

Risk assets were sent soaring higher on the back of news from Brussels, where EU officials are meeting to address the debt crisis. We are taking away three main things from the press conference; Europe's leaders have agreed to drop a requirement that governments receive seniority over banks on Spanish debt, banks can receive aid financing directly from the ESM and plans are in the works for a single supervisory agency body for Eurozone banks. Overall, some progress has been made on tackling the multitude of issues facing the Eurozone but, once again, a lot of questions remain unanswered. So far, its appears markets are content to wait until at least the end of the second day for answers ? although we want to see confirmation from peripheral bonds markets in Europe.

The good news is that the removal of the seniority clause should help bring down Spain's borrowing costs. Also, there was news that some amount of oversight from the troika will be removed when nations request support from the rescue fund, although they will still have to sign a memorandum of understanding outlining policy commitments and a timetable, and it must yet be ratified.

EURUSD shot higher on the back of the news, punching through 1.2600, before retracing later in the session. AUDUSD also pushed higher, smashing through numerous resistance levels on its way to a session high around 1.0171. 1.0205 should prove to be a resistance level if the aussie continues to gain against the dollar. But we are more inclined to think this risk rally is due to a lack of volume as opposed to a fundamental push higher, which creates the possibly of retracements overnight, in particular for the aussie and euro.

Earlier in the session, there was a slew of data out of Japan; Industrial production decreased slightly more than expected at -3.1% m/m, national CPI increase in line with estimates of 0.2% y/y, the jobless rate slipped more than expected, coming in at 4.4% (exp. 4.5%) and Tokyo CPI (ex-fresh food) printed at -0.6% y/y.

The yen, however, was tied-up in overall investor sentiment and failed to react significantly to the data. USDJPY was pushed lower through the session as investors flocked to the safe haven status of the yen, but the pair flattened out somewhat following the news from the EU summit. EURJPY briefly pushed through the all-important psychological barrier at 100.00, but price action didn't prove strong enough to hold the pair above this level which suggests it may start retracing.

Equity markets through the region were also lifted by the news out of Europe, shooting the ASX200 into positive territory (ASX200 +1.26%). The Nikkei255 didn't react as much to the European news but was already on its way up pre-data, thus it currently stands around 1.42% in the green.

All views expressed are the author's (see our disclaimer), not by association FNArena's.

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