German unemployment printed as expected, increasing by another 7K in Europe’s largest economy. This was the third month out of the past four of deteriorating labor conditions, as the slowdown in Europe caused by the sovereign debt crisis is clearly starting to take its toll on Germany which up to now has remained relatively immune to problems in the region.

Meanwhile in Italy the unemployment rate skyrocketed to 10.8% from 10.3% eyed reaching its worst level since the series began in 2004. Worsening labor conditions across the continent indicate that the toxic combination of investor uncertainty and brutal austerity cuts by the member governments are sending the EZ further into recession as business activity and lamor demand slows significantly.

The EURUSD drifted lower towards the 1.2250 level in morning European dealing after rising as high as 1.2288 in late Asian session trade, as investors lost their enthusiasm for risk in the wake of such weak economic data. The pair continues to tread water ahead of the key ECB meeting this Thursday, but if risk aversion flows pick up as the day progresses it may tumble further towards the 1.2200 figure during North American trade.