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Top Stories

• Asia Down Europe lightly up in post holiday trdae
• BTP remains wider ahead of Italian acutions
• Nikkei -0.46% up 0.33%
• Oil at $99.55/bbl
• Gold at $1597/oz.

Overnight Eco

• JPY Housing Starts (YoY) (NOV) 0.2% vs 0.1% eyed
• CHF UBS Consumption Indicator (NOV) 0.81 vs. 0.90

Event Risk on Tap

• USD S&P/CS 20 City s.a. (MoM) (OCT) expected at -0.2%
• USD Richmond Fed Manufact. Index (DEC) expected at 5
• USD Consumer Confidence (DEC) expected at 58.3

Price Action

• USD/JPY drifting lower below 78.00
• AUD/USD steady at 1.01050
• GBP/USD spikes out to 1.5700
• EUR/USD 30 points higher in post holiday trade at 1.3072

A very quiet night in post holiday trade with UK markets remaining closed has left most majors in very narrow trading ranges treading water. Asian markets were down weighing on risk sentiment a bit with Shanghai index hitting a 33 month low while Nikkei was down 0.5%. The EUR/USD however remained at the upper end of its range trading near the 1.3070 level outperforming the rest of risk FX.

There was little fundamental news to support the rise in the EUR\/USD as credit spreads in EU remain elevated with Italian 10 year benchmark bonds still above the key 7% level at 7.13% last. The LTRO efforts before the holidays are clearly not having much of an effect on the market with latest data showing that deposits at ECB overnight facility have hit an all-time high of 411B as safety remains the predominant concern. 

With more than 82 Billion in issuance in January and more than 200 Billion in sovereign debt issuance in Q1 of next year he pressure on the  downward pressure on the EUR/USD is likely to resume if periphery yields do not begin to ease. The whole EU sovereign debt sector faces a massive issuance wave of nearly three quarters of trillion euros in 2012 and that will remain the single biggest policy challenge in the region next year.

Meanwhile, the EUR/USD remains strongly oversold on a near term basis with latest CFTC  data showing that euro shorts have been reduced by only -2K in the week prior from -116K to -114K. The huge skew in positioning is probably the primary reason for the strength in the pair as the 1.3000 level remains protected for the time being. Yet once the oversold conditions corrects itself the pair could be vulnerable to further selloff if the credit environment in the region does not improve.

In North America today the calendar  carries Case Shiller data and Consumer confidence reports. The market anticipates an improvement in consumer sentiment and given the better labor data statistics that  forecast could turn out to be true and may help risk sentiment slightly at the start of the day. If US equity flows prove supportive the EUR/USD  could rally to the 1.3100 level on further short covering but flows are likely to remain subdued with little price action for the rest of the day.

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	14:00	9:00	S&P/CS 20 City s.a. (MoM) (OCT)	-0.2%	-0.57%
USD	15:00	10:00	Richmond Fed Manufact. Index (DEC)	5	0
USD	15:00	10:00	Consumer Confidence (DEC)	58.3	56

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.