Fundamental Headlines

BofA, Goldman, Barclays Have Fitch Ratings Cut – Bloomberg

Europe’s Crisis May Hold Seeds of Dealmaking – Bloomberg

Consumer Prices Flat in November – Reuters

Congress Blinks on Shutdown – WSJ

Ties That Bound Europe Now Fraying – WSJ

European Session Summary

The U.S. Dollar sell-off continued in the overnight, as a lack of bad news out of Europe coupled with the recent wave of better-than-expected data out of the United States has lifted higher yielding currencies and risk-correlated assets the past few days. In line with this, the Euro has advanced and held back above the key 1.3000 exchange rate, the proverbial ‘line in the sand’ for market participants trying to gauge how serious the Euro-zone crisis is becoming.

AUD/USD 5-minute Chart: December 15 to 16, 2011

Euro_Back_Above_1.3000_as_Funding_Concerns_Ease_For_Now_body_Picture_10.png, Euro Back Above 1.3000 as Funding Concerns Ease, For Now

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Still, despite the Euro’s resolve, the commodity currency bloc was the best performing group of majors on the day, led by the Australian Dollar, which was up over 1 percent, at the time this report was written. Overall, the FX Carry Trade Index, an equal-weighted basket of long Australian, Canadian, and New Zealand Dollars positions versus short Japanese Yen, Swiss Franc, and U.S. Dollar positions, is up 0.42 percent on the day.

Going forward, as holiday trading conditions set in, we expect volumes to be lower overall, and thus, lower volatility. Although there is a lot of pent up pressure in the Euro – market participants are waiting for news of downgrades from the rating agencies – as long as data and news isn’t too bad over the next two weeks, we would expect the Euro to float higher. Funding concerns remain the primary reason for the U.S. Dollar’s broad outperformance this past week, and should they ease, the U.S. Dollar will soften accordingly.

24-Hour Price Action

Euro_Back_Above_1.3000_as_Funding_Concerns_Ease_For_Now_body_Picture_13.png, Euro Back Above 1.3000 as Funding Concerns Ease, For NowEuro_Back_Above_1.3000_as_Funding_Concerns_Ease_For_Now_body_Picture_1.png, Euro Back Above 1.3000 as Funding Concerns Ease, For Now

Key Levels: 13:55 GMT

Euro_Back_Above_1.3000_as_Funding_Concerns_Ease_For_Now_body_Picture_4.png, Euro Back Above 1.3000 as Funding Concerns Ease, For Now

Thus far, on Friday, the Dow Jones FXCM Dollar Index is lower, trading at 10014.36, at the time this report was written, after opening at 10043.70. The index has traded only lower, with the high at 10043.70 and the low at 9997.19.

--- Written by Christopher Vecchio, Currency Analyst

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