EUR/USD is on the 1.15 precipice and the EU's contentious two-day summit nL8N1TU1MP could push it over if rancor regarding immigration and fiscal policies rises enough to tear at the fabric of the euro zone.
However, even if the summit fails to take action on key issues EUR/USD might still avoid a steep slide below 1.15 as long as there's no discernable deterioration in Italy's relationship with its northern neighbors. In that case, options barriers and other range-trading defenses at 1.1448 -- 50% of the 2016-2018 rise -- might hold up.
But an eventual breakdown is likely unless next week's PMI and ISM data show Europe's slowdown lifting and rapid U.S. Q2 growth tailing off at quarter's end.
Even then, there would have to be unexpected and sustained divergence in the data to narrow the -252bps rate spread between 10-year Bund and Treasury yields -- the lowest since the 1980s -- that argues for a much weaker EUR/USD.
Ten-year Treasury and BTP yields now at the same level also makes the EUR look too expensive on a risk/reward basis.
Breakdown targets are at 1.1186 and 1.0863, but 110 will be a popular new lower range base for many.
Chart: Click here