Euro weakness could set the tone

Markets have started the week some what slower than how they finished after last week amazingly erratic showing.

On Friday, despite the disappointing non-farm payrolls report, the payroll rose by 103’000 compared to expectations for a rise of 175’000, the dollar remained to dominate the euro as despite the report it was supported by the news that the unemployment rate fell to 9.4% from 9.8% in November, its lowest level since May 2009.

Any near term impact on US monetary policy following these figures is unlikely, and over the weekend Fed chairman Ben Bernanke warned that there is increased evidence of a self sustained recovery, the current rate of job creation was insufficient and a “considerable time” will be needed to right the jobs market.

Currency forecaster's will be looking to the week’s round of US Data for further direction, the most important will be Friday’s retail sales report for December, though inflation, industrial production and weekly jobless claims will also be watched closely.

Early trading this morning saw the euro touching a four month low versus the dollar and the lowest against the pound since September last year as concerns over eurozone sovereign debts were once again in the limelight.

Risk that Portugal is under pressure to accept aid from the EU and IMF, as Ireland had last year is also weighing on the pressure, which undermines the single currency and could continue to do so as the week goes on.

European currencies such as Norwegian Krone, Swedish Krona, Polish Zlotty and Hungarian Forint have all suffered from the downturn in the eurozone, as further risks over some member states weighs on European sentiment.

The ECB meets this week with no change to official rates expected, market watchers will as always look very closely to the post meeting press conference which may set the tone as to how the ‘experts’ see the current situation.

An insight into the reason behind the sudden up tick in eurozone inflation will be looked for.

Sterling will be looking towards the Bank of England for some direction also, as the Monetary Policy Committee meet to discuss interest rates. No change is expected so more fundamental data such as industrial production, consumer confidence and housing market reports should set the tone for the pound.