Euro sellers tire as markets look to Christmas

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The European single currency managed to claw back some respect yesterday and looks to have put in a bottom to this new trading range. Those eager to sell the euro pushed it through the 1.30 level against the USD but the belief that the recent move is overdone is becoming more widely held and therefore a reversal higher may be on the cards.

EUR found strength in stronger than expected manufacturing and services data from Germany while risky assets got a boost from a US initial jobless claims number that smashed expectations out of the park. Previously German services was the only PMI in Europe that was showing signs of expansion. While this still may be the case it is now showing the best level since July. Of course, one swallow does not summer make and a recession in the Eurozone from Q4 onwards is looking almost certain now.

Data from the United States continues to show that pessimism surrounding the US economy may not need to be as extreme as it is for other economies. Initial claims for unemployment benefits dropped to 366k last week, which was the lowest level since May 2008. This was a drop of 19,000 initial claims from the previous week’s adjusted figure of 385,000. Another key thing is that the four-week average is now 387,750, below the 400,000 level that is widely held to be needed to be making an impact on unemployment. Whether this is just a bounce on Christmas temp work will be evident as we move through January.

In the UK the data was slightly more in tune with the common trend, in that it was bad. Retail sales fell by 0.7% in November although they were 0.7% higher than they were this time last year (mainly as a result of the snow fall 12 months ago). It seems that even after a fairly aggressive spell of price-discounting on the High St consumers remain reticent to spend money. We had seen sales hold up well in previous months as retailers cut prices before Christmas but this simply seems to have dragged spending forward and we may now be looking at a void through December and January unless sentiment improves.

Today is probably the last real trading day of the year in that liquidity will really dry up from tonight’s close as trading desks shut down for the Christmas break. That means we should see a fairly quiet day as long as we do not get any more stupid rumours. The latest doing the rounds is that Italy and Spain are to be downgraded come the close of play in Europe. It is not unlikely but the timing would strike us as odd and therefore we will file it alongside the seemingly endless flow of rubbish that comes from this market. We do have further discussions on the Italian austerity package however today with the Italian politicians always good for a couple of comments that send the market crazier than rush-hour in Rome

The only data point of interest is US CPI that is expected to print at 3.5% when it is released at 13.30.

Indicative Rates Sell Buy
GBPEUR 1.1904 1.1934
GBPUSD 1.5504 1.5523
EURUSD 1.3007 1.3026
GBPJPY 120.72 120.98
GBPAUD 1.5511 1.5538
GBPNZD 2.0386 2.0411
GBPCAD 1.5986 1.6017
NZDUSD 0.7580 0.7593
GBPZAR 12.95 13.00
USDZAR 8.3504 8.3899
GBPPLN 5.3612 5.3911
EURJPY 101.33 101.60

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