EURUSD grind to new lows below the 1.2400 handle

Fundamental View

In the wake of last week, this week? calendar is particularly light with Thanks Giving on Thursday and Black Friday creating a 4 day weekend in the US. We saw the EURUSD grind to new lows below the 1.2400 handle, the lowest for Friday being 1.2376 on the December Future. We opened lower in the Asian Session this morning and are holding around the 1.2400 level. The move lower was due to Draghi? apparent urgency to act, his inflation commentary implied that he?d rather act sooner rather than later. It is also apparent that he feels the situation in the Euro Area has gone far enough and that the fact that he made such a statement implies that the rest of the governing council seem to agree. China also bore down on the markets on Friday with a surprise rate cut. This dramatically affected the European equities, especially the DAX. We saw the DAX make new highs for the session on the back of the cuts due to German exports to China. The cut to rates is an attempt to stimulate growth and this translates into the export space. It is to be noted that a push for continued growth could have adverse effects to the world economy due to the debt bubble China is currently in. The growth, which analysts expect China to hold around the 7% mark, driven by the ease of cash flow would allow more imports of the luxury/high end German goods. In turn this had, and will continue to have, a large effect on Crude oil. The sustained growth above 7% will mean China has a continuing demand for energy and as demand increases as growth increases, so does demand. In the short term however, with Saudi refusing to cut production and US crude imports at a 30 year low we see oil holding or moving lower this week ahead of OPEC. Traders are advised, however, to observe any comments coming from OPEC nations before Thursday.

Today? View

Today ahead we have US services PMI at 1445; this has been on the decline since the June peak at 61. A continuation of this could lead to some slight dollar weakness with muted reactions in stocks. The outlying factor in stocks we must consider is the hawkish undertones in the FOMC; John Hilsenrath, the closest reporter to the Fed, has closely analysed their minutes and reported that the increase in talk of the rate of change in interest rates implies that they are already planning contingencies for this. Today?s session is muted but opportunities are likely to present themselves in and around the 1400-1500 time frame. We have had some added confusion to the EURUSD short trade as we have had German IFO come in ahead of expectations. This number was sitting at a 2 year low so a pullback from this is a welcome breath for the German Business Leaders? Confidence. As we had the ZEW economists? survey beating expectations for the first time in 10 months this adds to some Euro strength in the near term, but in amongst a Euro weakening environment.

Alternative View

Given the lack of data and the moves seen earlier today the main risk we see for the afternoon ahead is derisking of positions ahead of the weekend. We recommend slight caution going into the afternoon and emphasise that the majority of macro-moves have happened already. Please trade in respect of this.