Euro: Will We See Another Thanksgiving Week Breakout? (page 2 of 2)

We believe that a bounce at this point is very likely especially given the spike bottom on Friday, but any bounce should be seen as an opportunity to add to short positions because UK fundamentals are deteriorating by the day. According to Rightmove, the average asking price of UK homes fell 0.7 percent in November. Their commercial director recommends that ``If you have to sell, then seriously consider dropping your price and taking an offer now rather than holding out." This is certainly not a favorable market for the UK home owner and we expect these conditions to be reflected in the overall economy in the months to come. Money supply, mortgage approvals and the CBI industrial trends survey are due for release tomorrow. Inflation could still be high, but mortgage approvals and CBI industrial trends could deteriorate.

Canadian, Australian, New Zealand Dollars All Face Sharp Losses
The Canadian, Australian and New Zealand are all significantly weaker today despite mixed economic data. The selloff was primarily due to equity market weakness and rising risk aversion. The Canadian dollar was the worst hit as a sharp rise in wholesale sales failed to offset the fifth monthly decline in foreign investment. Comments from Bank of Canada Governor Dodge this weekend also pressured the loonie. He said that risks to global growth have increased over the past month and he will take this into account when they meet to decide interest rates next month. To some traders, these comments suggest that an interest rate cut may be likely. We will need to see CPI tomorrow to be sure that the strong Canadian dollar has kept inflation under control.

Carry Trades Hit by Rising Risk Aversion
News that China will be curbing bank loans sent stock markets around the world tumbling. The Dow followed suit at the US market open and ended the day down over 200 points. Unsurprisingly, this rise in risk aversion has sent carry trades tumbling. USDJPY for example is close to making a new year to date low while the other yen crosses will soon make two month lows. There is no major Japanese data on the calendar this week which means that further strength or weakness will be almost exclusively dependent upon equity market performance.