EUR Creeps Higher in Quiet Market

The euro continues to edge higher as traders close out short positions and the year winds down. In early trading on Wednesday, NZD is the top performer while GBP lags. A swath of Japanese economic data showed an economy that continues to underperform. Tuesday's Premium trades are below.

Ranges remain extremely tight in the FX market but the euro has gained a half-cent since the start of the week. Speculators remain extremely short EUR and many will be balancing out positions before the dawn of 2012.

The main risk to a slow rise in EUR for the remainder of the week is a series of Italian bond auctions on Thursday. BPT yields inched higher again Tuesday with 10s flirting with 7%.

US markets were unable to capitalize on a surge in the Conference Board consumer confidence index. It gained nearly 10 points to an eight-month high of 64.5, easily beating the 58.2 expected.

Oher data was mixed as the Richmond Fed improved to +3 from 0 but fell short of the +5 expected. House prices in 20 of the largest US cities fell 3.4% y/y compared to the -3.2% expected.

The tone of Japanese data was considerably worse. Unemployment remained at 4.5% as expected but consumption and production numbers were significantly worse than expected. Industrial output shrank 2.6% in Nov compared to the -0.8% consensus. Retail sales fell 2.3% year-over-year in Nov versus the flat reading expected.

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With UK and Canada still on holidays, volatility is likely to remain subdued.

Compounding worries about Japan are growing press reports that the government will hike the consumption tax to 10% from 5% and the dawn of a riff with the US on FX intervention. In the US Treasurys semi-annual report on FX manipulation they made it clear that the US does not support the efforts. In the same report, they took no issue with the CHF peg and once again refrained from calling China a currency manipulator.