The Euro still under pressure as Eurozone debt issues resurface

The main data last Friday was the US non-farm payroll report with the market quite bullish ahead of the announcement following the strong private ADP number earlier in the week. The headline number however was disappointing, coming in at 103,000 against 175,000 expected.

A sharp drop in the overall unemployment rate garnered much attention, a steep 0.4% drop, though this is more likely to be from a drop in the participation rather than a clear picture of a sudden uplift in the jobs market. The market's reaction to the data was typically volatile but the end result saw the US Dollar strengthen with the most pronounced gains against the Euro, crashing through €/$ 1.29, a new four month low.

The single currency is starting to show the strain that was temporarily relieved by the Christmas break. Ending last week and going into a fresh one, the Euro is floundering under persistent concerns over peripheral Eurozone debt funding as Sterling has pushed above £/€ 1.20. The move by Sterling has been supported by the sinking €/$ and the more that rate falls, the more Sterling will enjoy the levels above £/€ 1.20.

This week we have Spanish, Portuguese and Italian bond auctions and with Portuguese 10 year rates pushing above 7% it would seem inevitable that Portugal may be the next country to ask for a bailout if their funding costs continue to spiral higher. Speculation has already started to that effect with a report in German magazine Der Spiegel at the weekend that Germany and France were putting pressure on Portugal to do just that.

The first full trading week in the UK is a busy one, starting with trade balance figures due on Wednesday. In London, the Bank of England monetary policy announcement is due the following day, though another month at 0.5% is pretty much guaranteed. Thursday also sees the release of industrial and manufacturing production data, with producer price index (PPI) numbers on Friday. The US is similarly packed, with the November trade balance and December PPI on Thursday, and December consumer price inflation (CPI) and industrial production data closing the week.