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Germany's Constitutional Court said a ruling on the ESM and Fiscal Pact is now set for September 12th.

German Finance Minister braced the markets last week that a ruling might not come until the Fall. Now that the date is official, and it's clear just how long this runway of uncertainty is, we can't stress enough how negative this timetable is for European (and global) markets.  The lack of clarity on the scope of the ESM, especially the mandate for bank recapitalization lending is hugely unsettling as market participants continue to want answers to a Eurozone "fix" yesterday. 

Much like the weeks leading up to Greek elections, we expect the heavy level of indecision around the ESM and path towards a fiscal compact to heighten headline risk. Spanish and Italian 10YR yields are already embedding a larger risk premium, up today to 6.82% and 6.15%, respectively. 

The chart below of the EUR/USD is dancing on our intermediate term TREND line of support. Our models suggest a current trading range of $1.20 to $1.23. Crumble Cake European leadership should only enhance the downside risk in this cross and the etf FXE. 

ESM's Runway of Uncertainty = Ugly! - aa. eur

Matthew Hedrick

Senior Analyst