• China cuts reserve ratio requirements by 50 bps, effective Dec 5
  • Shanghai share index closes down 3.3%, biggest one day drop since August 8
  • Japan rating agency R&I place Japan sovereign debt rating on monitor for possible downgrade
  • ECB seen being more flexible. Flexible in as much as increasing bond buying, cutting rates (refi rate possibly below 1%), widening collateral framework. ECB action hinges on greater govt commitments – Market News International quoting ECB sources
  • Italy market regulator Consob head: There is a risk of euro break up if ECB’s role remains unchanged
  • ECB seen buying Italian bonds
  • EU’s Rehn: We are in favour of an increase in IMF resources. Entering critical 10 day period
  • German Oct prelim retail sales +0.7% m/m, -0.4% y/y vs median forecasts unchanged m/m, +2.0% respectively
  • German November unemployment change -20k, better than median forecast of -5k, unemployment rate down at 6.9%, better than median forecast of unchanged 7.0%
  • Euro zone October unemployment 10.3%, up from 10.2% in September and above median forecast of 10.2%
  • Euro zone November CPI +3.0%, in line with median forecast
  • Swiss November KOF leading growth indicator 0.35, weaker than median forecast of 0.63, but in line with rumoured number. Lowest read since August 2009
  • Iran parliament speaker: UN Security Council condemnation of UK embassy storming “hasty.” Will lead to “instability in global security.”
  • British embassy evacuates staff from Iran

Not a huge amount of net change in the major spots and crosses this morning, but it’s been an interesting session.

EUR/USD sits at 1.3305, down from early 1.3335, having been as low as 1.3257 (if you take Reuters’ prices) or 1.3259 (if you prefer EBS)

The single currency fell early, underminned by the sharp decline in the Shanghai index and the prospect of sharply lower European stocks. Things really accelerated on the downside however when comment from an Italian market regulator hit the wires. Official opined that there is a risk of euro break up if ECB’s role remains unchanged. OK we all kinda know that, but what the heck.

Sell stops were duly tripped through 1.3270 accelerating the sell-off, but much talk of 1.3250 barrier option interest prompted some to book profits.

We started a slow recovery which gathered pace on news PBOC had cut reserve ratio requirements and Market News story that ECB prepared to be more flexible on a number of fronts (see above) This double whammy sent EUR/USD shooting up through 1.3300.

Cable sits at 1.5590, little changed from early 1.5600, recovering nicely from sharp sell-off which saw session low 1.5524 posted. We heard reports of decent buy orders lined up at 1.5505/20 and this prompted shorts to book profits resulting in sharp rally back.

USD/CHF touch firmer at .9225 from early .9195. EUR/CHF up very marginally at 1.2275 from early 1.2265. Reports of “large corporate” bids lined up down at 1.2250.

AUD/USD up at 1.0040 from early 1.0005. The move by the PBOC (China) to cut reserve ratio requirments 50 bps has helped underpin aussie.