Don't forget that you can now follow's research team on Twitter:

Although we are entering a hefty couple of days for economic data the key thing that everyone is looking at is the euro, it has tumbled in the last 24 hours and was as low as 1.3005 at one stage this morning. 1.30 is a key psychological level for the single currency and hasn't been breached for 11 months, if we see it fall through here it signals a couple of things: 1, the debt crisis has escalated and 2, market sentiment towards euro-based assets has taken another turn for the worse.

We have said in previous notes that we expect some stickiness around 1.30, and thus pullbacks would be completely normal. After touching 1.3005, EURUSD has since pulled back to 1.3040 -50 area. After yesterday's collapse in the single currency some investors will look to sell on pullbacks, so any strength here could be used as another entry point for more shorts.

The trigger to the slight bounce in the single currency this morning was news that the German Cabinet had approved reviving the bank rescue fund. Europe's banks remain in dire straits. Dollar-based funding costs have creeped back to 2-week highs, pre the coordinated central bank action earlier this month. Added to that banks are still having to borrow from the ECB as inter-bank lending markets dry up. Spanish banks borrowed EUR 98bn in November from the central bank up from EUR 78 bn in October. Italian lenders have also upped their borrowing from the ECB in the past month, as have Greek and Belgian banks

The banking index in Europe remains close to its lowest levels since 2009, and it is no surprise that the latest leg lower in the euro has been followed by a dip in bank stock prices. After rising earlier this month some of Europe's largest banks including Societe Generale have given back nearly all of their gains. It should come as no surprise that the cost to insure EU banks against default has soared in the past week to 513 (average) from 480 a week ago. This is significantly higher than the global bank average 5-year CDS of 395. This suggests that there could be some relative value opportunities ahead, as Europe's banks start to underperform their global counter parts.

So as we get close to the end of the year the Eurozone debt crisis doesn't look anywhere near to coming to an end. The markets have had time to digest the EU summit and decided it has done nothing to ease near-term concerns. There are no immediate funds available to help sovereigns or the banks (hence banks' poor performance noted above), Merkel said she was opposed to increasing the size of the ESM - long-term bailout fund - from its current EUR 500bn, and there may even be legal problems with implementing the Fiscal Compact that was agreed by the majority of EU members last week. So the one breakthrough from the EU summit looks like it could also be unravelling.

Thus, today's debt auctions from Italy and Germany should be closely watched. Spain and the EFSF had fairly successful auctions yesterday, although Europe's peripheral states continue to face extremely high yields when they sell debt, which are unsustainable in the medium to long term.

It looks like the Santa rally might be missed this year as European stocks open lower for the 6th day in a row. The Eurostoxx 50 index is nearly 20% down this year and it will take a heroic effort to get it back in the black before year end. In the very near -term, the absence of more action from the Fed, economic data releases in Europe and debt auctions could all keep investor sentiment subdued.

EURUSD is the key for FX traders today. Below 1.30 there should be good support at 1.2860 - the 100% retracement from the 1.4940 high reached back in early May. Interestingly it was EURGBP that led EURUSD lower this week when it broke below the 0.8500 support level. This pair is now testing 0.8400- the low from February, which opens the way to 0.8370 then to 0.8300. The pound is benefitting versus the euro as Gilts continue to attract safe haven flows as investors ditch Eurozone bonds. However, EURCHF is bucking the weak euro trend after producer price data in Switzerland was weaker than expected increasing pressure on the SNB to raise the EURCHF floor to 1.25 when it meets tomorrow.

Italian bond yields are actually lower today, but this may be on the back of ECB buying. Overall, the markets are nervous and this could weigh on risk appetite in the short-term. The euro seems out of favour and the pound seems to be the best performer out of the majors today. This could be after some better than expected labour market data. The UK's claimant count rose by 3k in October, much lower than the 13.7k expected.

Data Watch:
Euro Area 10:00GMT/ 0500 ET Euro-Zone Ind. Prod. sa (Oct) m-o-m 0.30% -2.00% 0.00%
Switzerland 10:00 GMT/ 0500 ET ZEW Survey (Expectations) (Dec) index n/a -64.3 n/a
Norway 13:00GMT / 0800 ET Norwegian Deposit Rates % 2.25% 2.25% 2.00%
New Zealand 21:30GMT/ 1630 ET Business NZ PMI (Nov) index n/a 46.5 n/a

Best Regards,

Kathleen Brooks| Research Director UK EMEA |

d: +44.(0).20.7429.7924 | f: +44.(0).20.7929.2010 | M: +44 (0) 7919.411.957 | e:| w:

23 College Hill | 3rd Floor | London EC4R 2RT

Now you can follow us on Twitter:

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, you should careful

ly consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that is not rendering investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. is regulated by the Commodity Futures Trading Commission (CFTC) in the US, by the Financial Services Authority (FSA) in the UK, the Australian Securities and Investment Commission (ASIC) in Australia, and the Financial Services Agency (FSA) in Japan.