Euro Edges Lower as Eurozone Leaders Meet in Brussels

The euro edged slightly lower against its main rivals on Thursday, as the Eurozone leaders converge onto Brussels to discuss the debt crisis in the Eurozone periphery. At the moment, the euro retreated 0.34% against the U.S. dollar to trade around $1.4146. At the same time, the European currency fell 0.31% against the Japanese yen to stand around ¥111.75. All eyes today are focused on Brussels, where the Eurozone leaders are trying to find a solution to the persistent debt crisis on the Eurozone periphery. The agenda is not yet set but it is widely expected that Greece will feature prominently in the discussions. The troubled Eurozone member has been forced to ask for a second bailout, after interest rates on its debt rose so high that Greece was in effect unable to borrow money to repay its debt on open markets. The Europeans now have to agree on which form the new bailout will take. Germany leads a group of countries of the Eurozone center, also including the Netherlands and Finland, which is demanding that the private sector covers some of the costs of the bailout. On the other side are France and the ECB, which view any “voluntary” losses for the banks exposed to the Greek debt as a selective default. They go on to argue that any type of default in Greece will be catastrophic for other debt-ridden economies like Ireland and Portugal. France, including its banks, has the highest exposure to the Greek debt, so there is little surprise it is trying to avoid switching the costs of the second Greek bailout onto private investors. At the same time, it is worth mentioning that the head of the ECB, Jean-Claude Trichet, is also French. Markets will be happy to hear that the leaders of the two opposing sides have agreed upon a common position. In yesterday's

, Chancellor Merkel and President Sarkozy reached an agreement on how to proceed with the crisis resolution. However, the exact content of the agreement remains unknown. In the shadow of the Brussels summit, the latest results indicate a slowdown in the Eurozone's service and manufacturing sectors. According to a research group

, Eurozone Manufacturing PMI fell to 50.4 in July from 52 in June. Most analysts had expected a milder fall to 51.5. At the same time, Eurozone Services PMI fell to 51.4 in July from 53.7. Once more, most analysts expected a smaller fall to 53.2. Both PMI values represent the lowest readings in the last 22 months. Economic recovery is losing steam in the two Eurozone powerhouses – Germany and France – as well. The latest Markit research shows that

fell from 54.6 in June to 52.1 in July, its weakest reading in 21 months, when most analysts had predicted the July value to stand at 54.1. Germany's service sector is losing steam as well as Services PMI falls sharply to 52.9 in July, the lowest rate in 17 months, from 56.7 in June. Most analysts had expected only a slight decrease to 56.1. In

, Manufacturing PMI fell from 52.5 in June to 50.1 in July, a new two-year low, when most analysts predicted the July value to be 52. At the same time, Services PMI declined from 56.1 in June to 54.2 in July, the lowest point in 16 months. Once more, analysts had expected a milder fall to 55.5. Even though manufacturing and service sector is expanding (any reading above 50 indicates expansion), the strength of the Eurozone recovery is rapidly declining. The problem of the periphery countries is not just high debt, but also weak growth. The latest results show it is even less likely that the Eurozone's tax revenues will rise, as a result of strong recovery, which would reduce the need for painful public sector cuts in order to restore budget balance.

Traders who believe that the European leaders will find a solution the ongoing debt crisis in the Eurozone periphery might want to consider the following trades:

Traders who believe that there are simply too many countries on the verge of bankruptcy so it is just a matter of time before one cracks, pushing other debt-ridden countries down the edge, may consider an alternate positions: