Kaiser Merkel’s turn in the firing line

A disappointing bond auction yesterday in Germany was a reminder to everyone of seriousness of contagion across the eurozone. Kaiser Merkel's turn in the firing lineThe reason for concern is if the core is being hit then there is no safe haven in Europe any longer.

However this may kick-start a reaction in German officials and realise that they need to act swiftly to provide solutions to the crisis.

Stock markets recovered overnight despite a huge drop in the Dow Jones, but markets remain nervous and rebound in risk assets could be brief.

Despite US data, it’s a pretty poor picture, in particular China’s HSBC November weaker purchasing managers’ indices coming in below the 50 boom/bust level.

Europe’s weaker purchasing manager indices emphasize the projection for recession while the news in Germany is both poor on the bond front and also on the data front.

A lack of liquidity due to the US Thanksgiving holiday will mean the markets are set for dramatic moves.

EUR/USD has already sustained a drop below the important 1.3500 level as even the underling strong Asian demand appears to have been pulled back.

More downside is expected but technical indicators suggest that it will be hard trudge lower, with near term support seen around 1.3285.

The near term range is likely to be 1.3285-1.3505 although given the US holiday the range may be even tighter.

Apart from the IFO attention today will focus on a meeting between Chancellor Merkel, President Sarkozy and Prime Minister Monti.

As usual expect a lot of hot air but little action. Also note there is a general strike in Portugal today protesting against austerity measures in the country.

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