Again today, the talk on the floor is how resilient the EUR has been relative to the USD in the face of the massive stress occurring in the eurozone.

Reports overnight that Commerzbank may need up to EUR $5 billion more capital than previously thought is only adding to the growing concerns that liquidity is drying up, hence European banks are heavily repatriating funds to build capital, which in turn is the reason that EUR/USD is supported below 1.35. It was interesting to see an overnight move up to 1.3569 when the IMF introduced new credit lines. However this proved short-lived when economists calculated that it would enable Italy to borrow around EUR $91 billion; small change when its borrowing costs for 2012 is over EUR $300 billion. During Asian trade, an article posted on Zerohedge website suggesting that the Dexia bailout may be on the verge of collapse saw EUR/USD pullback below 1.35, and may weigh on the single currency.

Liquidity is drying up a touch with Japan on holiday today ahead of Thanksgiving in the US on Thursday, which in theory could see volatility kick in tonight, given the events. European growth is a major talking point at present as a result of the austerity measures governments are trying to install; European manufacturing PMI numbers will therefore be closely watched, with manufacturing expected to marginally deteriorate to 46.1 (from 46.5), re-enforcing the view that a deep recession is imminent and deflation is not far off either. We will also get the findings of the European Commission’s report on major changes to the fiscal rules for EU members. This should include the idea of joint eurobonds, which should, given that for so long it has been a possible longer-term solution for solving the structural issues in Europe, see some caution from euro shorts, as this is a market devoid of any good news.