Ambrose Evans-Pritchard lays out the pros and the cons for the euro as it celebrates its tenth anniversary. He suspects that 2009 will be an okay year for the currency but internal strains will begin to grow late in the year.

This is the bigger question to be tested over the euro’s second decade. Currency unions can mask risk for a while. They shield sinners long enough to let imbalances get out of hand, storing up trouble for a more traumatic crisis later.

A big 92,000 drop in jobless claims is nice, but won’t last as the Christmas holiday kept some from filing. Next week’s data could be screwy as well with New Year’s Day shutting down the unemployment office.

Let’s hope the economists got a calendar in their stocking this year so they don’t screw up their claims forecasts every time there is a holiday, like they have in the past.

The market has especially stopped making sense in the last 24 hours, as anyone who witnessed the price action during the New York afternoon Monday can attest. I’m not sure what value can be added in trying to come up with cogent explanations for what will pretty much be pure supply and demand.

Commentary will be light through the turn of the year as I embark on a boondoggle of epic proportions: I’m headed for three college football bowl games in 5 days with a group of buddies from my far-off youth. I’ll try and check in from the road, wireless web access permitting.

Posting will resume in full-force on Monday. Happy New year to all!

EUR/USD has fallen back below 1.4000, making a fresh low for the session at 1.3968 in the process. A wave of profit-taking in EUR/GBP has helped accelerate the EUR/USD slide. Traders are using minimal finesse in the execution of orders. in fact, banks are using a minimum of human capital, having the machines price this stuff, by and large. Algos don’t blink and are not afraid to book a loss if need be.

The US is no longer the lone world super-power, China’s house organ Xinhua reports in a year-end wrap-up. Emerging markets gained in strength, they opine, though the evidence for that is pretty thin given the collapse in the financial markets globally in the second half of 2008. Drudge is running the headline in the pole position.

The market is thinner than a parisian runway model. EUR/USD is gapping in either direction this afternoon, plummeting from 1.4090 to 1.4014 before recovering to 1.4070. Dealers say it is hardly dealing with prices being marched up and down by algorithms. Looks like those guys who booked profit in late London before liquidity completely dried up had the right idea. It is advisable to stay close to the sidelines through the turn of the year and probably until next Monday.

A modest support level at 128.00 in EUR/JPY has given way prompting a pick-up in profit-taking in EUR/JPY, dealers report. The correlation with equities looks to have re-established itself at least temporarily today as the cross sinks along with share prices. US blue chips are down an average of 1.7% in early afternoon trade.

EUR/USD is giving back much of the gains made over night, traing now at 1.1455 from 1.4360 highs overnight/ EUR/JPY trades at 127.50. Support is at 127.05/10 on further pullbacks.

We are not alone in thinking the ECB has a lot more easing to do before they head to the policy sidelines. According to Bloomberg, large European fund managers are loading up on European government bonds. German bunds traded at record low yields earlier today at 2.89%.  I suspect they end up in similar territory to US yields (just above 2% in the 10-year maturity during the first half of 2009. This will shrink the interest rate differential between the euro and the dollar to the detriment of the euro.

The Chicago Fed’s Midwest factory index fell to 96.4 in November from 98.0 in October. This is a 12-year low for that index, not bad since most comparisons these days are to the deep 1982 recession.

The dollar is recouping some lost ground versus the euro but remains offered versus the yen and CHF.

EUR/USD trades at 1.4225, USD/JPY at 90.20 and USD/CHF is at 1.0420.

It seems as though dealers are afraid there won’t be anyone to deal with if they wait too long to take profits on the risk-aversion trades that have dominated the market the last two sessions. Gold has given back half its overnight gains while oil is at $38.75after breaking above $40 in London. EUR/CHF is bucking the trend, falling sharply over the last hour, reaching a low of 1.4825.

EUR/USD is 1.4242 after spending much of the morning near 1.4300. Support is light until 1.4175.

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