A difficult session for Japan's Nikkei 225 overnight wiped away risk appetite at the start of the European session. EUR/USD dropped back to 1.4847 early in the session, the EUR finding support from the strength of the EUR/JPY 132.00 technical barrier. Sterling found encouragement on positive news from the Oct retail sales data. The better tone of the USD has helped knock gold off its highs.

The OECD has doubled its forecast for growth in 2010 to 1.9%. It expects growth of 2.5% in 2010. Neither of these figures is exceptional which underpins the delicate nature of the present economic recovery. That said, the upward revision in forecasts by the OECD does reflect rising confidence that developed countries will be able to avoid a double dip recession in the coming year. The OECD's projections on Japan were less favourable. Japan is forecast to shrink by 5.3% in 2009 only a little better than its previous -5.6% projection. This dampened the enthusiasm about Japanese growth which had spread following Japan's recent better than expected Q3 GDP release and sparked fears that the Japan may significantly lag the upswing in evidence elsewhere in the Asian region. The OCED drew attention to Japan's abysmal public debt burden which it judged to be a constraint on fiscal spending. While the reversal of the risk trade has benefitted the JPY today comments from Japanese Finance Minister Fujii that he would not seek to strengthen the yen led to some paring of these gains.

When considered in light of the upward revision to the Sep data, the UK Oct retail sales report brought some encouraging news. Retail sales is now running at a rate of 3.4% y/y which reflects the better anecdotal evidence from retailers recently and perhaps the recent less bad labour market report. The rise in M4 to 11.0% y/y also suggests that the BoE's easy monetary policy may finally be having more clout on raising money supply. Taken together these data further the view that the UK economy is in the recovery stage. That said the coincident release of worse than expected PSNCR data serves as a reminder of the hefty fiscal retrenchment that faces the UK economy in the coming years. EUR/GBP moved towards the key 0.8910 technical support following the data releases but has subsequently bounced back to 0.8935. Cable failed to hold on to the USD1.6700 level and has pushed back to 1.6660.

AUD/NZD trended higher overnight as the OECD recommended that the RBNZ should keep rates on a record low in contrast to the policy of the RBA. Profit-taking set in at AUD/NZD1.2570.

This afternoon ECB President Trichet and also the Fed's Fisher are scheduled to speak. US initial claims, leading indicators and Philly Fed will be of note. Canadian leading indicators are also due. In Europe the EU is expected to appoint its first ever President. Though overtime this could be linked with increased coherence in the EMU, today's appointment should not impact the EUR.