Better Chinese Manufacturing Underpins Euro

The EUR/USD finished slightly higher on optimism over Greece and better than expected news regarding Chinese manufacturing. Also the so-called “fiscal cliff” issue in the U.S. continues to create worries, investors maintained steady demand for higher risk assets, driving the Euro to a six-week high against the Greenback. 

Positive news from Greece helped underpin the Euro. Greece began its bond buyback program in an effort to cut its massive debt. The size of the offering was said to be as much as 10 billion Euros or $13 billion in debt. This program is designed to lower interest rate payments which will help to improve the nation’s cash flow needs.

 Another positive development that is supportive for the Euro is the perception that Euro Zone authorities may be softening their desire for strict austerity measures from Greece to debt sustainability. 

News that China’s manufacturing purchasing-managers’ index came in slightly better than expected in November, came as a pleasant surprise to traders who were not looking for the country to show expansion at this time. This news was well-received by the market since it most likely means that China will avoid a hard landing. 

The weaker U.S. Dollar helped to support the British Pound although gains were muted by mixed fundamentals. Bullish traders cite the possibility that conditions are improving enough in Europe to pull the region out of a recession sooner than expected for today’s strength. On the bearish side, concerns over the U.S. fiscal cliff may be putting a lid on price advancement, but the biggest reason for the weak rally is the possibility of a resumption of the Bank of England’s asset buyback program, triggered by another recession in the U.K. during the fourth quarter. 

Despite the weaker U.S. Dollar, February Gold continued to feel selling pressure. The market is currently hovering around the key $1700.00 level which if broken with conviction could trigger another sharp break to the downside. 

Since the stock market appears to be offering the best alternative to gold, money may be flowing out of the metal and into equities. Uncertainty over the U.S.fiscal cliff may provide some support later in the month if a compromise isn’t reached, but until then the market may have to fall into a value zone near $1650.00 before bona fide support is established. 

News that China’s manufacturing improved sooner than expected helped to underpin January Crude Oil. If this report means that China has turned the corner then crude oil may have caught a break since this may mean increased global demand. On the negative side, as long as there is the possibility of a U.S. fiscal cliff, there exists the possibility of a recession in first quarter 2013. This may be the main reason why buyers have been mostly absent from the market at this time.