The US dollar is stabilizing but the tone remains fragile. The euro, which has advanced for five consecutive sessions coming into today is slightly lower. The euro had stalled yesterday as it approached last year’s high set in September near $1.2090.  

Yesterday was also the third consecutive close above the upper Bollinger Band, which is found today near $1.2060. There is a 950 mln euro option struck at $1.2030 that expires today. There is also a $1.1960 strike (518 mln euros) that will also be cut, but less relevant.  

Some had linked the euro’s gains yesterday and the sharp backing up of European yields to comments from ECB officials (Nowotny echoing remarks by Coeure and Mersch) suggesting that the eurozone economy continues to do well, the ECB’s asset purchases will end this year. We saw little new in these comments. They strike us a reiteration of ECB policy. European bond yields are lower today, with Italian and Spanish benchmark 10-year yields off four-five basis points. We see risks emanating from the early prepayment of TLTRO funds (near midyear), which will reduce the ECB’s balance sheet, Greece’s aid program ending, and, perhaps, lingering political uncertainty (Italy? Germany?) that may encourage the ECB to taper the 30 bln euro purchases further in Q4 17.  

Economics news from the eurozone today consists largely of Germany and Spanish employment reports. German unemployment fell by 29k, roughly twice the decline that was expected. The unemployment rate stands a t a record 5.5%, which is unchanged from the revised November reading.  Spanish unemployment fell 61.5k in December, which snaps a four-month period in which unemployment queues grew. December has seen large declines in Spanish unemployment in recent years. Despite an impressive economic recovery in Spain, the unemployment rate is still around 16%.  

Yesterday the UK reported a softer than expected manufacturing PMI. Today it reported a disappointing construction PMI (52.2 vs. 53.1 in November and expectations for a 53.0 reading). It stood at 54.2 at the end of 2016 (averaged 52.0 in Q4, 50.4 in Q3 and 53.2 in Q4 2016). Sterling had extended yesterday’s gains in Asia, rising to nearly $1.3615 (2016 high was set on September 20 near $1.3655), before moving lower in Europe. Initial support is pegged in the $1.3540-$1.3560 area.