There is little prospect of a significant improvement in underlying confidence in the Euro-zone economy. There will be continuing fears over further credit-rating downgrades and persistent unease over the financial sector with the risk that banking-sector losses will intensify. Although there are still a very high number of speculative short positions which will trigger sharp corrective gains at times, the Euro will find it difficult to sustained relief. Overall, there is still the potential for a medium-term EUR/USD losses to at least 1.20 even with further near-term support in the 1.2110-1.2150 area. Selling Euro rallies still looks the best strategy.

The Euro was unable to regain the 1.23 level during Wednesday, but it also held above Tuesday's lows with the currency able to find support above the 1.2150 level as key technical levels held following sharp moves. There were no further major developments surrounding the Euro-zone economy with government officials denying that the French AAA credit rating could come under threat. There were also denials that global central banks were looking to diversify away from the Euro.

The US housing data was again stronger than expected with pending home sales rising 6.0% in April after a revised 7.1% gain the previous month. Sales were still being boosted by the imminent expiry of tax credits and the sector will face more testing times as these incentives come to an end.

Attention will focus on the labour market over the next 2 days with the ADP employment and latest jobless claims data due on Thursday followed by the monthly employment data on Friday. Markets are expecting solid growth in permanent employment and the payrolls data is also likely to be inflated by the hiring of temporary census workers which could trigger a very substantial monthly increase. Markets will tend to take a positive view on the US economy unless the data is much weaker than expected which should provide some underlying dollar support

Risk appetite improved significantly in US trading as stock markets gained strongly. This helped the Euro resist renewed losses and it rallied to around 1.23 on Thursday as Asian equity markets advanced before drifting weaker again.

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