German and French PMI readings improved for the first time in months suggesting that that vicious contraction in demand that dogged the region over the past year may be showing nascent signs of stabilization. German Manufacturing PMI printed at 32.2 vs. 31.9 eyed while the Service PMI rose slightly to 41.7 from 41 forecast. The French data was better with services rebounding to 42.9 from 40.2 expected and manufacturing registering a reading of 36.3 versus 35 called. The EZ Composite PMI number also rose to 40.1 from 39.2 the period prior.

The EUR/USD ran to 1.3000 in early European trade today spurred by a major short squeeze in the Asian session as risk appetite returned to the currency market. However the pairs gains were tempered by a very weak French consumer spending report which suggested that growth in the region is likely to contract more severely than initially forecast.

French consumer spending collapsed in December contracting by -0.9% versus -0.2% expected as sentiment sunk to its worst level since 1972. Despite the Christmas shopping season consumers in Europe's second largest economy kept their purse strings tightly shut as worries over the looming global recession dampened any urge to spend.