Fundamental Headlines

•German 2012 Budget May Help Merkel Push Cuts –Bloomberg

•Papademos Seeks to Avoid Greek Collapse –Bloomberg

•Italy Pushes through Austerity, U.S. Applies Pressure –Reuters

•S&P’s French Rating Mistake Very Serious, to be Investigated –Reuters

•Italy Front-Runner Seen as Political Outsider –WSJ

European Session Summary

As markets headed into the final trading day of the week, volatility was expected to be limited as bond markets in the United States were closed due to a Federal holiday. In fact, given the lower expected volume, equity markets are looking for a strong days; higher volume has come hand in hand with losses by higher yielding currencies and risk-correlated assets. The fundamental developments out of the Euro-zone support this notion, as the Italian Senate approved a new budget law that cleared way for new austerity measures demanded by the supranational Euro-zone body.

The Italian 10-year bond saw substantial improvement from its Euro-zone era high at a 7.483 percent yield, trading at 6.545 percent at the time this report was written. The lower borrowing costs are encouraging for Italy, which has recently seen the market take aim at its bond markets on concerns that contagion could spread to the Euro-zone’s third largest economy.

Additionally, in a development that also sparked risk-appetite, the new Greek government led by incoming Prime Minister Lucas Papademos was in the process of being sworn in, with Finance Minister Evangelos Venizelos holding the same position from the former regime. Now that Greece has a government in place, attention turns back towards Italy and whether or not Silvio Berlusconi steps down from his position as Prime Minister over the weekend. He had promised to step down as soon as the austerity measures were passed by his country’s legislature, which could occur as soon as tomorrow; Berlusconi should thus step down tomorrow. If not, markets could face significant pressure when Asian trading opens on Sunday.

EUR/USD 1-minute Chart: November 11, 2011

Charts created usingStrategy Trader– Prepared by Christopher Vecchio

Overall, the Euro was trading higher across the board, outperforming the majors on the day on the developments out of the Euro-zone. At the time this report was written, the EUR/USD was 50-pips off its session low, trading at 1.3654. The U.S. Dollar sell-off was accelerating across the board ahead of trading in New York, as liquidity fears eased; even the Japanese Yen posted gains against the Greenback.

24-Hour Price Action

Key Levels: 13:45 GMT

Thus far, on Friday, the Dow Jones FXCM Dollar Index is lower, trading at 9769.42, at the time this report was written, after opening at 9806.67. The index has traded mostly lower, with the high at 9806.67 and the low at 9766.90.

--- Written by Christopher Vecchio, Currency Analyst

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