[B]
Talking Points
• Yen: Stock sell off has no effect
• Pound: Tests 2.01 but holds so far
• Euro: Below 1.4400 as PMI sinks lower
• US Dollar: TICS on tap[/B]
The euro liquidation continued as the week began with the pair dropping below the 1.4400 level in early London trade after staging a mild rally in Asian session. The primary reason for euro’s sudden weakness is year end profit taking as traders try to lock in gains before they disappear on front of their eyes.
Today’s trade was also affected by lackluster EZ PMI data which printed at 53.3 vs. 54.1 expected. While the PMI readings continue to remain above the key expansionary level of 50 they do suggest that growth in the region is moderating considerably, especially in services where the gauge fell to 53.2 from 54.1 weighed down by the problems in capital markets. In short, the PMI news offers ECB no ability to raising rates in the near future despite the strong pricing pressures throughout the Euro-zone economy. With focus now shifted from US rate cuts to EZ rate hikes, tonight’s news only helped to accelerate EURUSD decline.
As we noted in our weekly, “With only a few weeks left in the year the need to lock in profits could persist next week and provide dollar with an added boost as more EURUSD longs are unwound… If (US economic) numbers meet or beat expectations the greenback may have more room to go.”
Meanwhile, the pound also continued to weaken throughout the night as Rightmove housing survey prices declined another –3.2% on a month over month basis. The latest news regarding Prime Minister Brown which showed his approval ranking sinking to –26% from +48% just four months ago also did nit help matters. While new elections are not scheduled in UK until 2009 at the earliest, political discontent is never helpful to the country’s currency. With cable hovering near the 2.01 figure a break of that barrier could precipitate a test of the psychologically important 2.0000 level sometime this week as dollar rally continues.
