Euro Eyes 1.3000 as Risk On

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Market Drivers for Nov. 29, 2012
Risk ON in Europe as periphery yields fall
German unemployment better than expected
Nikkei .99% Europe up 1.13%
Oil $87.25/bbl
Gold $1725/oz.

Europe and Asia:
AUD HIA New Home Sales 3.4% vs. -3.7%
JPY Retail Trade -1.2% vs .-0.7%
NZD NBNZ Business Confidence 26.4 vs. 17.2
CHF GDP 0.6% vs. 0.2%
EUR German Unemployment Change 5K vs. 17.5K

North America:
USD GDP 8:30
USD Core Personal Consumption Expenditure 8:30
USD Initial Jobless Claims 8:30
USD Pending Home Sales 10:00
CAD Current Account 8:30

A decidedly risk on environment in FX today with EURUSD benefiting from better than expected German labor data and lower yields in the periphery to inch towards the key 1.3000 level in morning European dealing. German unemployment data suprised to the upside rising by only 5K versus 17.5K helping to keep EURUSD buoyed in early European trade. The labor statistics improved across the board. The number of payroll jobs rose by 2K in October after contracting -8K in September. Job vacancies were -2K in November versus -7K in October and seasonally adjusted unemployment rate remained at 6.9%.

The news was a breath of fresh air for the German economy which has shown serious signs of stress over the past several months as the recessionary forces in the periphery appeared to be spreading towards the core of Eurozone. However, the latest batch of statistics including last week’s PMI and IFO data and today’s unemployment report have shown that the economic activity in Germany may have stabilized though it is not yet expanding.

In other news Italy was able to auction off 5 and 10 year bonds at the lowest yield in two years, showing that credit market risk has decreased markedly over the past several months. Italy sold 3 Billion of 5 year bonds at 3.23% from 3.80% the auction prior, while the 10 year went off at 4.45% versus 4.92% last time. Bid to cover ratios were up as well suggesting that demand has remained robust. The news should help alleviate any financing concerns for Italy and reduce its debt service burden at a time when the country’s economy remains mired in a recession and revenue growth is likely to be a major challenge.

The euro has held its ground well in morning European dealing rising to a high of 1.2900 as it tries to make another run for the key 1.3000 level. Much of its direction will likely depend on the latest news from Washington DC were the ongoing budget negotiations over the Fiscal Cliff have dominated markets attention creating a seesaw in risk sentiment with every new comment from elected officials. For now however, the combination of positive economic news and optimism over a deal in DC are keeping the pair bid.

On the economic front US releases its Q3 GDP figures with markets anticipating a rise to 2.8% from 2.0% the period prior and if the number can meet or beat expectations it will likely provide a further boost to risk appetite as fears of a US economic slowdown will recede. USD/JPY remains well anchored above the 82.00 figure and any upside surprise in the US GDP data could spark another test of the 82.50 level as the uptrend in the pair remains in tact.

Boris Schlossberg
Managing Director

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