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    European Session – Euro falls below 1.09, aussie weighed by China, yen outperforms

    Risk aversion driven by geopolitical concerns in the Middle East and renewed worries about China’s growth following some disappointing PMIs led to the safe havens outperforming today. The yen benefited from risk off sentiment, pushing the dollar/yen pair to the lowest level since-mid-October at 118.69 yen in early European session trading before bouncing to 119.35. It stalled but held above 119.00 yen.

    Worse-than-estimated US ISM manufacturing PMI added to an already weak sentiment for the dollar. The index fell to 48.2 in December versus 49.0 anticipated and was weaker than November’s 48.6.

    The greenback was also weak against the euro but gained against the pound and the Australian dollar. Commodity currencies fell sharply and growth concerns after the Chinese data showed the manufacturing PMI (Caixin index) came in below forecast and remained in contraction territory.

    The euro was supported by risk aversion in Asia and early in Europe and rose against the dollar to reach a high of 1.0945 before momentum faded and the pair fell back down to the 1.08 handle. While Eurozone PMI data was quite upbeat, showing growth in all Eurozone member countries, German inflation slowed unexpectedly in December and this weighed on the euro.

    For the Eurozone as a whole, manufacturing PMI rose to a 20-month high to give a final reading of 53.2 from 52.8 in November. The final reading was a slight improvement from the flash reading of 53.1. German inflation data on the other hand was surprisingly weak and could pressure the European Central Bank to further loosen its monetary policy. Monthly CPI came in at -0.1% against an expected 0.2%. On a harmonized basis, the inflation rate for the whole of 2015 fell to its lowest level on record to print a reading of 0.1%.

    For the United Kingdom, the manufacturing PMI was not as upbeat as the index for December came in nearly a full point below expectations to 51.9, showing UK manufacturing growth slowed to a three-month low in the final month of 2015. December’s number was down from 52.5 in November and below the expected reading of 52.7.

    Sterling briefly rose above 1.4800 in Europe against the dollar after having fallen to a 9-month low of 1.4691 in Asia. Cable soon lost steam and reversed back down to 1.4731. The disappointing data today would likely raise concerns that UK growth would not be strong enough to justify an interest rate rise this year.

    The Australian dollar was the weakest currency today, losing 1.4% versus the US dollar and down 2.3% versus the yen. China is a major trading partner for Australia and so the disappointing Chinese PMIs today weighed on the aussie. AUDUSD plunged to 0.7168 and AUDJPY to 85.41.

    The Canadian dollar also underperformed today versus the greenback and only got a brief boost from the jump in oil prices. WTI oil spent most of the session above $37 and breached $38 in early US session trading, helped by the tensions between Saudi Arabia and Iran. The Chinese data overshadowed the news on Middle East tensions and did not help the loonie, which is a commodity currency. So concerns over slowing growth in China will likely affect demand for commodities overall. USDCAD recovered from the early Asian session low of 1.3811 to rise to 1.3890.

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