Euro Recovers On Euro Bonds Comments

UK labor market data mixed; Eurozone industrial production higher. Market turns to US PPI, Retail sales, Canadian Capacity utilization rate and the teleconference between Merkel, Sarkozy and Papandreou.

UK showed mixed labor market data. Aug claimant count declined to 20.3K from previous 33.7K but the unemployment rate remained steady at 7.9%. The claimant count rate was unchanged at 4.9%. Q2 public sector employment experienced the largest decline on record as there are now 240K fewer people employed.

GBP has been under pressure over the last three weeks and reached a 1.5705 low today as the speculation about QE2 grows. MPC member Adam Posen has been QE proponent year long and it seems that his quest is gaining traction as the Chancellor George Osborne said that there are no barriers to launching more QE in the UK.

Eurozone Industrial output increased 1% in July after 0.8% contraction in June. On annual basis production rose to 4.2% from 2.6%. The bulk of the gains came from Germany where production surged 4.1% while Italy, Spain and Portugal all contracted. Another worrying aspect of today’s print is that the last two releases were revised lower.

Euro is currently trading higher after the head of the European commission Jose Barroso called for deeper Eurozone integration that would stop negative cycle of debt crisis. Barroso also said that the European commission will soon present options for the introduction of Eurobonds.

The New York session starts at 8:30 am ET with August PPI that is expected to decline to 6.5% from 7.2% on annual basis. Core annual PPI is seen slightly higher at 2.6% from 2.5%. August Retail sales are anticipated lower at 0.2% from 0.5%.

Market volatility could also increase as Treasury secretary Geithner starts his speech at the Alpha conference in NY at 8:30 am.

Canadian Capacity Utilization rate due also at 8:30 am is seen steady at 79%.

The market will also focus on the conference call between Merkel, Sarkozy and Papandreou that is scheduled for 12:00 pm ET. Over the past few days, several rumors made the rounds about imminent Greek default so convincing financial markets that the situation is stable is an important and difficult task.