Euro Propped by M3; Pound and Yen Steady

Another day in the holiday trading week, another Asian/early-European session of mild, range bound trading. Traders will be looking forward to a return of liquidity in the New Year as price action has left something to be desired. This morning, the euro worked higher against the dollar, targeting the 1.3200 level but subsequently easing back towards 1.3160. Meanwhile, Cable held between 1.9600-1.9670, with price currently in line with Thursday’s New York close of 1.9633 as USD/JPY maintained an ultra-thin range of 118.75-119.00 on sparse data.

Economic news for the Euro-zone has been meager over the course of the past week, with the only data for the area released today. Euro edged slightly lower on German GfK consumer confidence, which unexpectedly dipped down to 8.7 while the month prior was revised lower to 9.2 from 9.4. The sentiment figure was dragged lower by a plunge in income expectations while the willingness to buy component also slipped. However, the outlook component surged, indicating that while households are wary of their personal finances, they are far more bullish of German economy as a whole. Additionally, M3 money supply in the Euro-zone picked up more than anticipated in November, as the annual rate hit 9.3%, the highest since February 1990 while the three-month moving average (the European Central Bank’s preferred measure) rose 8.8%, the biggest gain since May 1990 and well above the ECB’s reference value of 4.5%. The money supply data will add to the arguments of inflation hawks in the ECB, and along with the relatively robust level of consumer sentiment, the likelihood for further monetary policy tightening in 2007 increases. When market participants return next week, these expectations could translate into a short-term surge for EUR/USD back above the 1.3200 level.

In the US today, the help wanted index is the sole release. Not typically a major market mover, traders may still pay heed to the release to gain perspective on next Friday’s NFP report. However, with liquidity still low, markets may not attempt to price in the payroll report until next week.

We’ll be gone until January 2nd. A happy and safe New Year’s to all.