EU policy makers have come forward with a strong response to the region’s banking crisis, following negotiations at the Brussels summit this week. The agreement will allow recapitalization of Spain’s struggling banks directly, and will also see utilization of euro zone rescue funds to buy sovereign bonds from Italy.

There had been something of a stand-off with Angela Merkel earlier in the week, as Germany, one of the largest economic powers in the euro zone, was reluctant to continue bailing out its neighbors. The euro zone debt crisis is also taking its toll on Germany itself.

Merkel subsequently advised she is satisfied with the deal, stating "I think we found a good compromise"; this is vital in assisting finance other euro zone countries who are experiencing difficulty with escalating borrowing costs.   Merkel advised that the planned lending deal included required safeguards for taxpayers and cash that would be utilized in EU bailout funds.

Subsequent to the EU's actions and statements, markets have seen the most bullish day recorded since last November for the European 17-nation common currency. The euro is trading at 1.2692, after opening the day with the EUR/USD at 1.2432. Commodities have likewise seen strong upside, and gold strength has been seen from the $1550 area lows printed yesterday and is currently trading around $1600 per ounce. The S&P500, a barometer for risk, is trading close to a one month high.  US oil is another big gainer with a daily range of 78.24 to 74.08. The question now is will the plan stand up to scrutiny over the coming weeks or is this just a "dead cat bounce"?

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