Morning Currency Wrap for Wednesday December 1, 2010

Is The Euro Correction Over or Dead Cat Bounce?  - Time will tell, but the Euro would have to press passed yesterday's high of around 1.3150 for it to be sustainable. Why the rally off the lows - according to Bloomberg - The euro rose against the dollar and yen amid speculation European Central Bank policy makers meeting tomorrow may signal their willingness to act to prevent the spread of the region’s debt crisis. No kidding, does the ECB even have a choice? If they don't act the whole system will implode. The ECB will have to start printing money, strike that I mean they will have to start their own version of QE and buy every sovereign bond in sight. Remember last year when the Fed and ECB were talking about exit strategies, well that's all it was, just talk - QE will have to go on and on until the whole global monetary system is fixed. Back to the markets, the market awaits tomorrow's ECB policy meeting, which some expect the central bank to keep its three-month liquidity operations unlimited to help banks struggling for cash. This Euro bounce is just another opportunity to get short. Take a look at the gold price, is it telling you that the problems are fixed? No, what it is telling you is that it expects the ECB to engage in QE and this will further undermine the perception of the Euro as a hard currency alternative. News in China that purchasing managers' indexes registered their strongest readings in seven months and the story was similar in India, where the HSBC Markit PMI climbed to a six-month high help the market to change its focus from sovereign debt crisis to global growth. This was followed up with improved manufacturing in Germany, France, Italy, and the UK. This good news lit a fire on the risk on trade as better manufacturing means higher oil prices and firmer commodity prices. The bad news is that increased manufacturing in China and India leads to higher inflation - China raised interest rates in October for the first time in nearly three years and India has already raised interest rates six times this year. The good news spurred stocks higher and the USD lower. In the U.S. this morning, news that U.S. private employers added more jobs than expected in November caused the USD to slightly extend gains versus the Yen and trimmed losses against the Euro. ADP Employment Change data indicated that private payrolls expanded by 93,000 in November, more than the 58,000 that was expected, and October was upwardly revised to 82,000. In Canada, the CAD was firmer against the USD as good news in the U.S. is good news for Canada. Canada's data calendar is bare until Friday when the November jobs report is published.