Australia’s manufacturing sector grew at a slower pace in November, falling 0.5 points to 51.2. The activity was dragged down by a stronger currency and weaker new orders and inventories.

Inventories index fell 6. point to 42.8 but the employment index showed signs of life, rising 9.1 points to 53.7.

EUR/GBP buying, EUR/CHF buying by SNB, EUR/JPY selling as a risk-aversion play, and persistent USD weakness; all these ingredients have to be thrown into the mix before we can come up with a destination for EUR/USD in the short to medium term.

The weight of the argument would seem to be with the bulls but what worries me is that the EUR/USD is at historically high levels. Certainly the US has its problems but it has done much to try and rectify them whereas Europe it seems is still sitting on a time-bomb when you look at the individual debt of many of the member countries.

All up then it looks like I should be range trading the EUR/USD with a very mild bullish bias, as long as 1.48 continues to hold. The next upside target is the double-top neckline at 1.5290 and this should be the upper end of the range.

(Or based on my analysis above; when EUR/USD gets to 1.48 I should sell USD/JPY, and when EUR/USD gets to 1.53 I should sell cable!)

Based on the comments yesterday by RBA board member Warwick McKibbin, I believe that the RBA will in fact raise rates by 25 bps for the third successive month. Not everyone is so sure with this report in the Sydney Morning Herald seeing it as a line-ball call. The RBA will not meet again until February which I think increases the chances of a rise. The calming down of the situation revolving around the Dubai-World project will also make it easier to take the decision to hike.

Once a trend gets started in the FX markets it generally takes at least a few weeks to mature. USD/JPY has started to pick up bearish momentum on the successive breaks below important technical support levels at 88.00 and 87.10. The manner in which these breaks occurred suggests to me that there is more to come. I will continue to play the edges of a broad 84/88 range with a definite bearish bias.

With regard to sterling, I think we may be in for a  big week or two. If my information is correct, there is some very large selling of GBP by German interests in the UK which will of course involve the buying of EUR. EUR/GBP last night broke above short term resistance at .9140 and I’m looking to trade a short term range of .9100/90, again with a very definite bias, this time bullish.

Good luck today.

• Canadian GDP rises 0.4% in Q3; weaker than expected
• Chicago PMI rises to 56.1 in November from 54.2 in October
• Goldman: US banks have raised enough capital to cover two-thirds of losses
• Trichet: If non-standard measures pose threat to price stability, will be removed immediately
• Dubai World seeks to renegotiate $26 bln of its $59 bln in debt
• Yacht with 5 British crew seized by Iran
• Stocks turn up at close on Dubai World restructuring news; ends up 0.4%; S&P rises 5.7% in November
• Gold, oil rally late. Gold ends at $1178; Oil at $77.20

As ever, month-end proved choppy and unpredictable. Flows overshadowed fundamentals for most of the US session with sales of EUR/USD a major feature at the London fixing and for the several hours following the fixing. About 30 prior to the 16:00 Fix, the selling began in earnest and EUR/USD began its slide from the 1.5045 area to a low at 1.4975. Demand was found in that region on three pushes lower and we recovered in afternoon trade as news that Dubai World is seeking to renegotiate about half its debts was taken as a positive by the market. We rebounded toward 1.5020 before stalling.

GBP/USD was sold heavily in late London trade, extending GBP weakness that had been in place for much of the session. Chinese buying in the 1.6400/10 slowed the decline but we ultimately dipped to 1.6385 before rebounding to 1.6445 late.

AUD/USD perked up late in the session, rising ahead of the RBA meeting and a slightly better risk appetite among early Asian traders who are trading on a December P&L. New Yorkers are trading in November, and keeping a low profile ahead of month-end. AUD ends close to US session highs, now at 0.9155.

USD/CAD slipped late as well, with oil and gold showing late strength. We trade at 1.0553 late.

USD/JPY rallied to 86.75 before heavy EUR/JPY selling for the 16:00 GMT fixing pushed prices as low as 86.00. We spent the afternoon recovering and end near 86.45. Traders await another barrage of Japanese verbal intervention on Tuesday. Perhaps the government will have its story straight this time…

CNBC report that Dubai World is tying to renegotiate $26 bln of its total of $59 bln in debts. Creditors have been asked to appoint a representative to a creditors committee. Dubai says the other $33 bln in debt is in good standing.

EUR/USD is firming on the news, as are stocks. The smaller total exposure may be helping increase risk appetites. Markets are very, very thin this afternoon, so we’d counsel against fading rallies as there is really no telling where markets can go in illiquid conditions.

No, not Gerry. His village is amply represented.

I successfully drummed Dylan Ratigan off CNBC earlier this year. Now I have another target: The unctuous Simon Hobbs. Send him back to London, where he belongs…

After a very active morning, prices have settled down in quiet ranges this afternoon as the month draws to a close. Traders are looking ahead to ISM data from the US tomorrow as well as another 25 bp hike from the RBA tomorrow.

RBA rate hikes have been paying diminishing returns for the AUD as the market always tightens faster than the central banks (prices in moves before they come). This would be the first time in the RBA’s history that they hike three meetings in a row; since there is a two-month gap between meetings, traders expect them to hike tomorrow and reassess between meetings.

AUD/USD trades quietly at 0.9140 after spending the US session trading between 0.9110 and 0.9160.

Another friendly gesture from our friends in Tehran…

Cable is rebounding in thin afternoon trade with many bank traders having retreated to the sidelines for month-end, not wanting to squander their winnings with mere hours to go…We trade now at 1.6425 after a dip to 1.6382/85 late in London.

The governor of the UAE central bank says that there is no reason for concern as local banks have hiked capital and are able to weather the global crisis. according to a Reuters headline.

That may be true, but markets are concerned about their local crisis…The banks will survive, but Dubai World and subsidiaries are likely to end up looking very different in the months ahead.

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