Euro Surrenders Earlier Gains

The euro has surrendered its earlier gain, dropping a full cent from the session highs set in early Europe just above $1.2450.

The short-term technical indicators were a bit stretched, but the proximate cause seems to be news from the Germany's Bafin, the financial regulator, that the German government remains committed to the naked short ban despite the lack of international or even European support.

Bafin's head has gone even further to suggest that the government is considering making the ban on some EMU debt securities permanent, while currently there is a March 2011 expiry, according to Reuters coverage. A couple of days ago, a draft document suggested that euro derivatives (not exactly sure all that is including here) and additional equities could be added to the banned naked short list.

In addition to the euro, European shares prices seemed to trim their earlier gains.

With month end at hand and holidays in the UK and US on Monday and the consolidative tone, many participants lack near-term conviction, but we do not see a serious change in market sentiment or fundamentals (yet).