Vasilis Tsaprounis
Independent Analyst
The single European currency is trading just below the 1.05 level in the early hours of Friday, trying to absorb some of yesterday's losses where the critical 1.05 level finally collapsed.
It was an expected development with high chances as all the weights that have been putting pressure on the European currency lately remain on the table.
The high geopolitical risk, the persistence of US government debt securities yields in high levels and concerns about the course of the European economy maintain the negative climate against the European currency, creating significant obstacles to reaction efforts.
Some signs of stabilization in US Treasury yields is on the table the recent days with the 10-year bond trading near the 4,40 level, showing signs of fatigue.
No changes in my assessment that soon we will see some decompression in yields, with a return of 10-y note near to 4,00 level being a likely scenario.
A possible de-escalation in the level of US yields is expected to provide significant relief to the European currency and room for further correction.
Concerns about the return of the ghost of inflation to the US economy continue to pressure the bets on possibility for another cut in key interest rates by the Fed in December.
Today's agenda is quite rich, with indicators for the course of the manufacturing and services sectors in the Eurozone and the United States expected with particular interest by investors.
I maintain a somewhat conservative approach and remain on hold. I would prefer to bet on a scenario of a correction of the European currency to some new strong dip and I would feel more comfortable to bet in favor of the euro at levels near 1,0400 level.
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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