Euro Gives Up Gains Pound Hurt By Data

· AUD home loan demand softer
· EUR Industrial data is strong but ECB survey dampens market
· GBP Trade Balance widens
· CAD employment on tap

The euro unwound yesterday’s rally, dropping below the 1.3000 level in earlyLondon trade in the wake of a survey by ECB that noted a drop in housing loan demand in the fourth quarter of 2006. Higher EZ interest rates are apparently having a dampening effect on consumer credit, however banks also reported that loan demand from corporations remained strong. In short the data supports the ECB view of slow and steady tightening, but traders sold the euro on speculation that future rates hikes from ECB will be fewer and more spaced out given their impact on consumer demand in the region which still remains rather fragile.

In other news, the industrial data from both France and Italy was quite impressive, not only beating market expectations but in the case of Italy registering significant upward revisions for the month prior. Overall, tonight’s fundamental data should please euro longs because it is likely to contribute positively to Q4 GDP. However, trading in the EURUSD remains largely range bound as both Euro-zone and US data tend to offset each other. Next week brings a slew of US economic releases including US Retail Sales and Industrial Production and traders will be better able to judge the true strength of the US economy. For now markets appear to be at a stalemate.

Meanwhile, across the pond cable again came under pressure as the Visible Trade Balance deficit ballooned to –7.142 Billion from –6.900 Million expected. The deficit from month prior was revised downward to –6.8 Billion from –7.19 Billion initially reported, but the data highlights UK exporter’s struggle with the high exchange rate of the pound as total goods exported fell –1.2%. Whether the woes of UK manufacturing have any impact on future BoE monetary policy remains to be seen. Next week UK will report various inflation data and those releases are likely to carry more weight with MPC members. Nevertheless, yesterday’s no action decision on the interest rate front by the UK central bank has confirmed to the market that they will stand aside for the time being and demand for the currency has clearly waned ever since.