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EUR/USD FX commentary January 3, 2012

Hi all.

Now is when things in the market will start getting interesting as we start to get back some normalcy this week. The market should be ramping up the volume in the next couple days as ADP and NFP jobs numbers are released and traders come back from vacation. The big one being NFP of course. The numbers are expected to increase from 120k to 153k however even the better jobs figures will have little effect on unemployment and will most likely be due to holiday hiring rather than an increase in demand in the workforce. So unless there is a substantial unexpected increase I am thinking the reaction may be muted although as we all know the NFP is a prime event for the SM to run the manipulation game so that’s what I will be looking for. The EZ has posted its 5th month of contraction in manufacturing. This was reported from Reuters.

Euro zone manufacturing activity declined for a fifth consecutive month in December, although at a slightly slower rate than November’s 28-month record low, a survey showed on Monday, suggesting the decline would continue in the early months of 2012.

Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose slightly in December to 46.9 from November’s 46.4, but marked its fifth month below the 50 mark that divides growth from contraction. It was unchanged from an earlier preliminary reading.

Survey compiler Markit said levels of production and new orders fell in all of the euro zone countries covered by the survey for the second month running.

“Despite the rate of decline easing slightly in December, production appears to have been collapsing across the single currency area at a quarterly rate of approximately 1.5 percent in the final quarter of 2011,” said Chris Williamson, chief economist at Markit.

“The survey also points to a strong likelihood of further declines in the first quarter of the new year, with producers cutting back headcounts, inventories and purchasing.”

For now I expect the Euro to benefit from any optimism and positive US data. However once the thinking of economic decoupling becomes more prevelant the Euro and US equities will start to diverge until of course this decoupling theory is disproven by the US slowing down also. Its going to be an interesting first few months this year guys.

As for the charts nothing has changed from yesterday with banks still being closed around the world. I will still be keeping an open mind however with a little bias to the up move to test the descending trendline on the daily chart before any move to drop below January 2011 lows.

Take care and be careful out there.


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