http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/euro_open/2011/01/04/FOREX_Euro_Threatened_as_German_Job_Creation_Slows_in_the_Fourth_Quarter.html
Key Overnight Developments
- Australian Dollar Slumps on Flood Concerns, Manufacturing Data
- US Dollar Outperforms on Firming Economic Growth Outlook
Critical Levels
| CCY | SUPPORT | RESISTANCE |
| EURUSD | 1.3269 | 1.3414 |
| GBPUSD | 1.5422 | 1.5551 |
The Euro and the British Pound declined, shedding as much as 0.3 and 0.2 percent against the US Dollar, as the greenback pushed broadly higher after the US manufacturing sector expanded at the fastest pace in seven months. As yesterday, the US currency advanced in tandem with stock markets, reinforcing its apparent shift away from risk-driven trade. We remain short EURUSD.
Asia Session Highlights
| CCY | GMT | EVENT | ACT | EXP | PREV |
| AUD | 22:30 | AiG Performance of Manufacturing Index (DEC) | 46.3 | - | 47.6 |
| JPY | 23:50 | Loans & Discounts Corp (YoY) (NOV) | -4.5% | - | -4.5% |
| AUD | 5:30 | RBA Commodity Price Index (A$) (DEC) | 94.6 | - | 93.5 (R+) |
| AUD | 5:30 | RBA Commodity Index SDR (YoY) (DEC) | 47.7% | - | 47.5% (R+) |
The Australian Dollar underperformed in overnight trade, slumping against all of its major counterparts for an average loss of 0.5 percent. Interestingly, the move came even as most Asian stocks advanced, which would have been expected to boost the risk-linked currency.
The drop may be linked to fears that an ongoing flood in the Australian state of Queensland will disrupt overall economic growth. Queensland Premier Anna Bligh said the calamity will cost “billions” while leading mining firms BHP Billiton Ltd and Rio Tinto Group declared “force majeure”, allowing them to miss contractual deliveries on as much as 73 percent of the state’s coal exports (which in turn account for 37 percent of global seaborne supply).
Separately, Australia’s manufacturing sector shrank for the fourth consecutive month, contracting at the fastest pace since July 2009, according to a report from the Australia Industry Group. AiG chief executive office Heather Ridout chalked up the outcome to “structural pressures [affecting] trade-exposed sectors in the wake of the mining boom,” alluding to the sharp two-year rally in the Australian Dollar. The currency rose on the back of interest rate hikes driven by surging growth in the mining sector, hurting demand for the country’s other exports.
Euro Session: What to Expect
| CCY | GMT | EVENT | EXP | PREV | IMPACT |
| EUR | 7:45 | French Consumer Confidence Indicator (DEC) | -31 | -32 | Low |
| EUR | 8:55 | German Unemployment Change (DEC) | -15K | -9K | Medium |
| EUR | 8:55 | German Unemployment Rate s.a. (DEC) | 7.5% | 7.5% | Medium |
| GBP | 9:30 | Purchasing Manager Index Manufacturing (DEC) | 57.2 | 58 | Medium |
| GBP | 9:30 | Net Consumer Credit (NOV) | 0.2B | 0.3B | Low |
| GBP | 9:30 | Net Lending Sec. on Dwellings (NOV) | 0.7B | 1.0B | Low |
| GBP | 9:30 | Mortgage Approvals (NOV) | 46.5K | 47.2K | Medium |
| GBP | 9:30 | M4 Money Supply (MoM) (NOV) | - | 0.7% | Low |
| GBP | 9:30 | M4 Money Supply (YoY) (NOV) | - | -0.7% | Low |
| GBP | 9:30 | M4 Ex OFCs 3M Annualized (NOV) | - | 2.9% | Low |
| EUR | 10:00 | Euro-Zone Consumer Price Index Est. (YoY) (DEC) | 2.0% | 1.9% | Medium |
| EUR | 10:00 | Italian CPI (NIC incl. tobacco) (MoM) (DEC P) | 0.2% | 0.0% | Low |
| EUR | 10:00 | Italian CPI (NIC incl. tobacco) (YoY) (DEC P) | 1.7% | 1.7% | Low |
| EUR | 10:00 | Italian CPI - EU Harmonized (MoM) (DEC P) | 0.2% | 0.0% | Low |
| EUR | 13:30 | Italian CPI - EU Harmonized (YoY) (DEC P) | 1.9% | 1.9% | Low |
Germany’s Unemployment figures headline the economic calendar, with the number of people out of work set to decline by 15,000 in December. While seemingly encouraging, the outcome would show that the pace of job creation weakened to the slowest in six quarters in the final three months of 2010. The Unemployment Rate is expected to hold at 7.5 percent – an 18-year low set in September – for the fourth consecutive month. The outcome may spur Euro selling, chipping away at confidence in the Euro Zone’s top economy.
Meanwhile, preliminary Euro Zone Consumer Price Index figures are set to show the annual inflation rate accelerated to 2 percent in December. While the outcome would amount to a two-year high, it seems unlikely to stir rate hike expectations with the European Central Bank busy lowering borrowing costs – not raising them – in the wake of the sovereign debt crisis still gripping the currency bloc. Furthermore, the central bank is forecasting inflation to average 1.7 percent over the next two years, putting the pace of long-term price gains below its target of 2 percent.
Finally, UK Mortgage Approvals are expected to decline for the seventh consecutive month, dropping to the lowest since May 2009. The reading promises to reinforce the latest batch of dour housing market surveys published over recent weeks and underpin expectations that the Bank of England will remain on the sidelines at next week’s policy meeting.
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