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FX: Anemic US Data, Euro Selling Off Quickly

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Although the latest U.S. economic reports brings to light the continued challenges facing the U.S. economy, the data was completely ignored by currency traders who care little about backwards looking numbers that do not impact Fed policy. In the month of November, the U.S. trade deficit widened from -$43.3B to -$47.8B, which was much weaker than expected. The disappointment was caused by exports which fell 0.9 percent to a four month low and imports which rose 1.3 percent. Demand for crude oil and automobiles were so robust that it offset weaker orders for consumer goods. The U.S. trade numbers confirm that the fourth quarter was a tough one for many countries. Inflation is not much of a concern with import prices falling 0.1 percent. While the U.S. endured weaker trade activity in November, Canada reported a trade surplus courtesy of higher energy and auto exports. It is clear that the cost of crude oil played a very big role in trade activity that month. The University of Michigan consumer sentiment report will be released later this morning but the main focus for the U.S. today will be the speeches by Fed Presidents Duke, Lacker, Bullard and Evans.

Of course, the U.S. is only a sideshow to Europe. Yesterday's short squeeze in the EUR/USD found legs in the early European trading session with the currency pair reaching a high of 1.2875. Unfortunately a weak Italian bond auction erased all the gains and the sell-off gained momentum throughout the European and early North American trading sessions. Once investors saw the low bid to cover ratio for Italian bonds, they started dumping euros and U.S. traders joined in on the action following comments from Eurozone sources that S&P could downgrade several Eurozone countries. More downgrades are inevitable and will be one of the greatest risks for the euro this year. Although we believed that the EUR/USD could be squeezed higher after yesterday's strong move, we warned our readers that the path of least resistance in the EUR/USD is still lower and it is now clear that even Draghi's reassuring words were not enough for investors to overlook the euro's bigger problems.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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