All Eyes On Europe

All eyes turn to Europe as high stakes diplomacy unfolds on the road to Brussels on Friday

Global markets wait nervously today as Europe races towards a pivotal day on Friday.

The Euro dollar FXE traded flat in U.S. markets, along with FranceEWQ and Germany EWG as this global drama unfolds.

At home, the S&P 500 SPY was also flat while long term U.S. Treasuries TLT traded lower in anticipation of potential fireworks later in the week.

The news flow has been nothing short of extraordinary with S&P downgrades to “credit watch negative” for 15 Euro zone countries along with the European Financial Stability Fund.  Of course, the timing of these downgrades couldn't have been more perfect and ratchets up the pressure on Euro Zone leaders to come to some substantive result from this week's summit.

U.S. Treasury Secretary Geithner raises the stakes and the pressure, as well, as he is in Europe for a “who's who” round of meetings with European Central Bank President Mario Draghi, Bundesbank President Jens Weidmann, German Minister of Finance Wolfgang Schaeuble, French President Nicholas Sarkozy and Finance Minister Francois Baroin.

Geithner has long been an advocate of leveraging the EFSF and isn't shy of aggressive central bank action and the topics of IMF involvement via loans to troubled countries and European Central Bank bond buying are sure to be on the agenda.  This is the widely discussed European “bazooka” and U.S. Bond market action, along with French and Spanish bond market action would indicate that the bazooka might be loaded for action in coming weeks.

Bottom line for ETF investors: Watch for action from Europe in a dramatic, 11th hour, announcement.  If global markets ”buy into” the outcome, a dramatic rally would likely commence, while any sort of perceived failure would lead to a “Lehman 2.0″ event in Europe.  Technical and fundamentals would point to a positive outcome, but one can never be sure because, after all, this is Europe. 

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