Euro Depreciates on Growth Concerns as Leaders Plan to Discuss Collateral

The Euro stumbled in the overnight as the start of a new month, in which equity markets, historically, have traded lower,

Fundamental Headlines

• Euro Rescue Fund Faces Political Demands – Bloomberg

• Weak Data Add to Fears of Slowing Growth – Financial Times

• Europe Rejects IMF Call for More Bank Capital – Reuters

• U.S. Has “Enormous” Debt Problem: ECB's Stark – Reuters

• Jobless Claims Meet Forecasts, Stock Futures Still Lower – WSJ

European Session Summary

The Asian and European sessions saw some interesting developments and perhaps a marked shift in the near-term structure of the currency markets following Thursday's price action. While the Euro was the biggest loser on the day thus far, the Swiss Franc continued to surge ahead of the pack, taking back over 2 percent at least against the major currencies, while surging over 3 percent against the British Pound and the Euro the past two days.

As this shift has begun, with risk unwinding and the Swiss Franc gaining favor once more as a safe haven asset after it became clear that Swiss policymakers don't expect the Swiss National Bank to be able tohold a peg if one were enacted in the future, a perfect storm against the Euro has materialized. Disappointing data released in the overnight session showed that European manufacturing slowed to its weakest reading in two years, and had begun a cycle of contraction. On a similar note, the aggregate Swiss growth figure for the second quarter fell in line with market expectations at 0.4 percent, showing that a stronger Franc hasn't weighed on growth too much thus far.

EUR/CHF 10-minute Chart: August 31 to September 1, 2011

Charts created using Strategy Trader– Prepared by Christopher Vecchio

Additional news out of Europe ahead of the North American session demonstrates that, at least on a fundamental level, that the Euro-zone is facing increased risks due to infighting among member states, as officials announced that Dutch, Finnish and German finance ministers would meet on September 6 to discuss the Greek bailout, as well as the broader Euro-zone debt crisis. Finland has demanded collateral in exchange for Greek bailout funds, a serious enough demand that it has been floated that Greece would nationalize their banks, and use said banks' equity as collateral. The Finnish demand for collateral has triggered similar demands from Austria and the Netherlands, a move that could derail the second Greek bailout.

Pre-North American Session Summary

In terms of data ahead of the North American trading session, applications for unemployment benefits in the United States fell last week by 12K, although the labor market remains mired in a slump that hasn't been abated since growth resumed. Overall, claims fell to 409K, but remains above where it was three weeks earlier.

Tomorrow, the nonfarm payrolls report, the United States' reading of the labor market, will be released. Given recent data releases, there is a chance that the actual figure prints well-below market expectations of 70K jobs added in August.

Thus far, on Wednesday, the Dow Jones FXCM Dollar Index is slightly higher, trading at 9470.50, at the time this report was written, after opening at 9453.34. The index has had a relatively tighter range, trading as high as 9486.41 and as low as 9440.58.

24-Hour Price Action

Key Levels: 12:40 GMT

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

Follow Christopher Vecchio on Twitter: @CVecchioFX