EURUSD has a first go at 1.5000 - will this trend ever end

MAJOR HEADLINES – PREVIOUS SESSION
Overnight developments:

• EU Trade Commissioner threatened China with anti-dumping measures if it didn't take action on issues causing its ballooning trade surplus with the EU.
• USD reaches new all-time lows vs EUR and CHF and USDJPY drops to a fresh 29-month low
• Germany Oct Import Price Index out at 2.3% YoY vs. 1.9% expected

THEMES TO WATCH – UPCOMING SESSION
Key event risks today (all times GMT):

• EU November preliminary Manufacturing and Services PMIs (0900)
• UK Q3 GDP and related data (0930)
• UK BBA Mortgage Lending (0930)
• EU ECB's Weber to Speak in Frankfurt (1300)

Market Comments

Another new low for the USD overnight, as little volume needed to be put through the market to drive the USD where it is, considering that the US was offline yesterday and Japan was on holiday for Asia's Friday session as well. As we approach the actual 1.5000 level, there could be more two-way interest, however, as options barriers no doubt come into play. Note that EURUSD is trading against the upper limit of its rising channel as discussed in the chart below.

Little to report in market developments as the recent themes continue. The focus for next week could well be Trichet's visit to China, after the EU Trade Commissioner unleashed a rather pointed attack on the situation - very justifiably so, as the EUR is bearing far too much of the burden in global imbalances. Europe has reason to be hopping mad, and the Airbus announcement yesterday that the strong EUR/weak USD "threatens [its] life" is a prime example of why. But can Trichet and company get the stubborn Chinese to move any more than they are at present? They've shown a consistent pattern of rejecting international calls (particularly from the US) as they fret about the economic impact of a quicker reval.

If, or once, these currencies (China and GCC countries first and foremost) finally show signs of more flexibility and depegging, the adjustment that will need to take place is in these countries versus the rest of the world - not just the USD. This development should mean that the EUR strength relative to the USD would finally begin fading as the big exporters slow their accumulation of reserves. The problem comes in discerning when this might take place, as just yesterday, the United Arab Emirates moved yesterday to cut rates and stem speculation of an AED reval ahead of the GCC summit next month and China consistently keeps its currency artificially week as it "manages" the reval vs. the USD rather than letting it find a market price - as evidenced by the rise in EURCNY over the last 12 months from 10 to 11 even while USDCNY falls.

Other factors that could  stem the USD weakness are stronger signs of a global growth slowdown relative to the US (a "recoupling" rather than the popular "decoupling" theme of the moment) and/or more significant signs from the Fed that they will stop cutting rates to prevent a run on the greenback. So, as long as the US continues to show relative weakness, global imbalances remain out of whack, and pegged currencies drag their feet in the reval process, the USD could weaken even further, but the trend may already be somewhere in its blow-off phase, as evidenced by the EURUSD chart, which would suggest that the trend may not have much further to run - at least timewise.

Charts: EURUSD
The pair squirted higher once again and have tested the resistance line of the rising channel on this remarkable leg higher from 1.3500. Note that this channel actually represents a significant acceleration of the old trend channel. Trend acceleration of this type usually is unsustainable for longer periods of time, so as a function of time, we should look for at least a significant consolidation soon. The only way to play for this tradewise is through options until we get a technical reversal, however, to indicate what price offers resistance.