EUR/JPY at Decade Low as Euro Broadly Pressured

Euro dived to decade low against yen and hover after yesterday's record low against aussie. The common currency remained broadly pressured in spite of solid bond auctions recently. Italy will sell as much as EUR 8.5b of bonds due from 2014 to 2022 today. Based on recent auctions, today's result would likely be positive. However, there isn't any sustainable buying Italian bonds to send rates away from 7%. Meanwhile, there were increasing talk about ECB's record bank deposits and the ineffectiveness of the three year LTRO in improving interbank liquidity. Both developments would likely keep Euro soft and any recovery attempt should be temporary. Recent selloff should continue in thin year-end trading. In Greece, the main political parties have agreed to postpone parliamentary elections by two months to give time for the interim government to pass important reforms.

In addition to Italy's bond auction, US economic data will be a major focus today. Initial jobless claims posted some positive surprises this month and has been staying well below 400k mark. Markets are expecting claims to rise back slightly to 372k but we might get another better than expected figure again. Chicago PMI is expected to drop slightly to 61 in December. Pending home sales are expected to rise 1.5% mom in November. Earlier in European, Eurozone M3 is expected to rise 2.5% yoy in November. Germany CPI is expected to moderate to 2.2% yoy in December.

Dollar index had another attempt at 50% retracement of 88.70 to 72.69 at 80.695 yesterday but again lacked follow through buying so far. Nonetheless, near term outlook will remain bullish as long as 792.4 support holds. Current rally is expected to continue to 100% projection of 72.69 to 79.84 from 74.72 at 81.86 next. However, break of 79.24 will be an important alert of reversal and would turn bias back to the downside for a test on 55 days EMA (now at 78.63).