Monday Update

The euro is rebounding slightly while the pound suffered in Europe on Monday.

Generally the dollar is higher, helped by last Friday’s stronger-than-expected gross domestic product figures from the U.S. as well as some anticipation of more strong data later this week.

The Euro took center stage as a technical rebound helped it to bounce early in the day despite continued concerns about Greece’s debt problems.

The latest data from the Chicago Mercantile Exchange showed that speculative euro shorts have risen back close to the all time record on September 2008. ( NB Worth noting that this was close to the bottom for Euro Dollar which susequently rose nearly 20% by the end of the year)

The Euro also got an additional lift from the latest euro zone purchasing managers’ index, which rose to 52.4 from 51.6. The market had only been looking for a rise to 52.0.

However, market participants doubt that the euro’s new-found strength will last long, given that Greece’s debt problems are not about to go away and given that economic data continues to point to a more robust recovery in the U.S.

Overall, market sentiment was helped by the surprisingly strong fourth-quarter GDP data showing that the economy grew by 5.7% and not just by 4.8% as expected.

The market is now looking for a healthy rise in the latest Institute of Supply Management surveys later this week as well as non-farm payrolls Friday, which could show an increase.

Meanwhile, in the U.K., the latest manufacturing PMI rose to 56.7 in January from 54.6 in December. The consensus forecast was for a fall to 54.0.

However, the news failed to give any help to the pound, which had been falling from early in the day following weekend press reports suggesting the Bank of England’s monetary policy committee is split.

This suggests that is a chance that the central bank extends its quantitative easing program when it meets later this week because of a lack of confidence in the recovery.

By mid morning, the dollar had risen to Y90.34 from Y90.29 late on Friday in New York, according to EBS.

The euro was up at $1.3909 from $1.3866 and at Y125.66 from Y125.22.

The dollar was also down at CHF1.0581 from $1.0606 while the pound was down at $1.5905 from $1.6004.

The Swiss franc gave back some of the losses it suffered against the euro in New York Friday, after reported intervention by the Swiss National Bank when the Euro fell under CHF1.4650.

With the possibility of further weakness in equities which seem to have been side-stepping any good news this could well point to further weakness for the Euro and US Dollar strength.

Short term may see a bounce for the Euro but it could become vulnerable with moves below good technical support in the mid 1.37s . If this was to coincide with further Equity weakness and heightened tension over some Euro deficits then a much bigger move below 1.30 could follow.