The specifics of an agreement over bank capitalization, Greek haircuts and a broadening of the ESFS have now been dampened by investors given leeks that have come out of the EU summit. Although hopes are that officials will step up and create a grand plan, expectations have been muted.
The general outline at this point is for EFSF to act as insurer for new Italian and Spanish issuance, around EUR100 billion in European bank recapitalization by the middle of next year, and a special purpose vehicle set up that will hopefully see outside investors.
The IMF may offer precautionary lines of credit to Italy and Spain. Deeper “voluntary” haircuts toward 50% or more on Greek exposure will be sought. The ECB’s independence will likely be preserved and will not be forced to be involved with the EFSF schemes. Euro remains firm, but upside seems to be capped near resistance as an underwhelming plan seems likely. The risk seems to the upside and a plan that incorporates more than the market expects could propel the Euro above the 1.40 level.
A close above the 1.40 level, will prove to be the technical impetous that moves the currency pair higher.
The Trade: Purchase a daily binary option call on the EUR/USD on a daily close above 1.4005, with a cap at 1.4150.
Asset : EUR/USD
The trade : Binary Call Option
Expiry time : End of day
When : On a daily close between 1.4005 and 1.4150.