More Pressure on the Eurozone

The week will start slowly with no major market movers economic indicators. It’s time to rest a little after the marathon week we’ve had last week. Furthermore, US and Canadian banks will be closed on Friday for the Veterans day.

In one of our market updates last month titled “Will Trichet play his Joker card?” We took out the possibility of Trichet cutting rates at his last meeting. Mario Draghi, our new hero, has finally cut the much expected 0.25% from interest rates putting it at 1.25%.

The G20 summit ended up with different countries dropping the Euro zone to deal with its problems alone. Most non-European countries agreed that the Euro members can bailout themselves without any external help. It’s something normal, how you can expect countries to bail you out while you have failed to do the minimum to help yourself. It seems a direct message to Germany which is considered the most powerful European country. But as we said last week, despite Papandreou being kicked out of the government, he has made Greece the most powerful country not only in Europe but in the world. Sometimes, weakness is a source of power. Now that the message from Greece is very clear; we don’t need to beg anymore, either you bail us out or we default without remorse. This message was very powerful and clear; Merkozy were very worried last week after this kind of comments, they knew that if such a scenario plays out, they will be in deeper problems themselves.

Non-farm payroll came out from the US at came in less than expected at 80k versus a revised 158k. While the unemployment rate dropped to 9.0% for the first time since April.

As far as trading is concerned, the markets are vulnerable to any news that can hit the wires. The single currency is in a range since the first of November. It has been under pressure since the opening of the markets on Sunday night and will need significant news to drop below the bottom of the range (1.3600 area). The most probable scenario would be a drop in the euro and other risk-taking pairs during the European session. Depending on how extended this drop would be, we would see some kind of retrace during the US session. If no significant news are out, or no stop loss taking process occur today, we will respect the range at least until tomorrow.